We expect that the Company will continue to pay quarterly cash dividends at or above the current level. The timing, declaration and payment of future dividends, however, falls within the discretion of the Company’s board of directors and will depend upon many factors, including the Company’s financial condition and earnings, the capital requirements of our businesses, industry practice, restrictions imposed by applicable law and any other factors the board of directors deems relevant from time to time. In addition, the ability to pay dividends also is potentially affected by the restrictions described in Note 2 Statutory Restrictions on Investments and Stockholders’ Equity to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of Part II of this report.

During the year ended December 31, ~~2011,~~2014, the Company did not issue any unregistered common stock.

The following table describes purchases by the Company of the Company’s common stock which settled during each period set forth in the table. Prices in column (b) include commissions. Purchases described in column (c) were made pursuantPursuant to the share repurchase program initially announced by the Company on March 16, ~~2011. Under this plan,~~2011 and expanded on March 11, 2014, which program has no expiration date, the Company may repurchase up to ~~$150.0~~$250.0 million of the Company’s issued and outstanding common stock. During the quarter ended December 31, 2014, the Company did not repurchase any shares under this plan. Cumulatively the Company has repurchased ~~$2.5~~$67.1 million (including commissions) of its shares and ~~had~~has the authority to repurchase an additional ~~$147.5~~$182.9 million (including commissions) under the plan.

The following performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that it is specifically incorporated by reference into such filing.

The following graph compares the cumulative total stockholder return on the Company’s common stock with the corresponding cumulative total returns of the Russell 2000 Financial Services Index and a peer group index for the period from June 2, 2010, the first day the Company’s common stock traded in the regular way market on the New York Stock Exchange, through December 31, ~~2011.~~2014. The comparison assumes an investment of $100 on June 2, 2010 and reinvestment of dividends. This historical performance is not indicative of future performance.

The selected historical consolidated financial data for First American Financial Corporation (the “Company”) as of and for the five-year period ended December 31, ~~2011,~~2014, have been derived from the Company’s consolidated financial ~~statements presented in Item 8.~~statements. The selected historical consolidated financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto, “Item 1—Business,” and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company became a publicly traded company in connection with its spin-off from its prior parent, The First American Corporation (“TFAC”), on June 1, 2010 (the “Separation”). The Company’s historical financial statements prior to June 1, 2010 have been derived from the consolidated financial statements of TFAC and represent carve-out stand-alone combined financial statements. The combined financial statements prior to June 1, 2010 include items attributable to the Company and allocations of general corporate expenses from TFAC. As a result, the Company’s selected historical consolidated financial data prior to June 1, 2010 do not necessarily reflect what its financial position or results of operations would have been if it had been operated as a stand-alone public entity during the periods covered prior to June 1, 2010, and may not be indicative of the Company’s future results of operations and financial position. See Note 1 Description of the Company to the consolidated financial statements for further discussion of the Separation and basis of presentation.

Note A—Prior to the Separation, a portion of TFAC’s combined debt, in the amount of $140.0 million, was allocated to the Company based on amounts directly incurred for the Company’s benefit. In connection with the Separation, the Company borrowed $200.0 million under its revolving credit facility and transferred such funds to CoreLogic, which fully satisfied the Company’s $140.0 million allocated portion of TFAC debt.

Note B—Stockholders’ equity refers to the stockholders of the Company and excludes noncontrolling interests. TFAC’s invested equity refers to the net assets of the Company which reflects TFAC’s investment in the Company prior to the Separation and excludes noncontrolling interests.

~~Note C—The Company did not declare dividends prior to the Separation as it was not a stand-alone publicly traded company until the Separation.~~

~~Note D—~~Per share information relating to net income is based on weighted-average number of shares outstanding for the years presented. Per share information relating to stockholders’ equity is based on shares outstanding at the end of each year.

Note E—B—Number of common shares outstanding for ~~prior years~~2010 was computed using the number of shares of common stock outstanding immediately following the Separation, as if such shares were outstanding for the entire period prior to the Separation.

Note F—C—Title order volumes are those processed by the direct domestic title operations of the Company and do not include orders processed by agents.

Note G—D—Number of employees is based on actual employee headcount. The increase in headcount in 2010 was due to certain offshore functions being performed internally by the Company that prior to the Separation were performed by TFAC. This increase in headcount is substantially related to employees employed outside of the United States.

This Management’s Discussion and Analysis contains certain financial measures ~~including adjusted title insurance and services segment operating expenses and personnel costs,~~ that are not presented in accordance with generally accepted accounting principles (“GAAP”)., including adjusted information and other revenues, adjusted personnel costs, adjusted other operating expenses and adjusted depreciation and amortization expense, in each case excluding the effects of recent acquisitions. The Company is presenting these non-GAAP financial measures because they provide the Company’s management and readers of ~~the~~this Annual Report on Form 10-K with additional insight into the operational performance of the Company relative to earlier ~~periods and relative to the Company’s competitors.~~periods. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this Annual Report on Form 10-K, these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Readers of this Annual Report on Form 10-K should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures.

The Company became a publicly traded company following its spin-off from its prior parent, The First American Corporation (“TFAC”) on June 1, 2010 (the “Separation”). On that date, TFAC distributed all of the Company’s outstanding shares to the record date shareholders of TFAC on a one-for-one basis (the “Distribution”). After the Distribution, the Company owns TFAC’s financial services businesses and TFAC, which reincorporated and assumed the name CoreLogic, Inc. (“CoreLogic”), continues to own its information solutions businesses. The Company’s common stock trades on the New York Stock Exchange under the “FAF” ticker symbol and CoreLogic’s common stock trades on the New York Stock Exchange under the ticker symbol “CLGX.”

To effect the Separation, TFAC and the Company entered into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”) that governs the rights and obligations of the Company and CoreLogic regarding the Distribution. It also governs the relationship between the Company and CoreLogic subsequent to the completion of the Separation and provides for the allocation between the Company and CoreLogic of TFAC’s assets and liabilities. The Separation and Distribution Agreement identifies assets, liabilities and contracts that were allocated between CoreLogic and the Company as part of the Separation and describes the transfers, assumptions and assignments of these assets, liabilities and contracts. In particular, the Separation and Distribution Agreement provides that, subject to the terms and conditions contained therein:

obligation associated with participants who were employees of the businesses retained by CoreLogic. See Note 14 Employee Benefit Plans to the consolidated financial statements for additional discussion of the defined benefit pension plan.

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and reflect the consolidated operations of the ~~Company as a separate, stand-alone publicly traded company subsequent to June 1, 2010.~~Company. The consolidated financial statements include the accounts of First American Financial Corporation and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in which the Company exercises significant influence, but does not control and is not the primary beneficiary, are accounted for using the equity method. Investments in which the Company does not exercise significant influence over the investee are accounted for under the cost method.

The Company’s historical financial statements prior to June 1, 2010 have been prepared in accordance with generally accepted accounting principles and have been derived from the consolidated financial statements of TFAC and represent carve-out stand-alone combined financial statements. The combined financial statements prior to June 1, 2010 include items attributable to the Company and allocations of general corporate expenses from TFAC.

The Company’s historical financial statements prior to June 1, 2010 include assets, liabilities, revenues and expenses directly attributable to the Company’s operations. The Company’s historical financial statements prior to June 1, 2010 reflect allocations of corporate expenses from TFAC for certain functions provided by TFAC, including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, communications, compliance, facilities, procurement, employee benefits, and share-based compensation. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on the basis of net revenue, domestic headcount or assets or a combination of such drivers. The Company considers the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by the Company during the periods presented. The Company’s historical financial statements prior to June 1, 2010 do not reflect the debt or interest expense it might have incurred if it had been a stand-alone entity. In addition, the Company expects to incur other expenses, not reflected in its historical financial statements prior to June 1, 2010, as a result of being a separate publicly traded company. As a result, the Company’s historical financial statements prior to June 1, 2010 do not necessarily reflect what its financial position or results of operations would have been if it had been operated as a stand-alone public entity during the periods covered prior to June 1, 2010, and may not be indicative of the Company’s future results of operations and financial position.

The Company consists of the following reportable segments and a corporate function:

The Company’s title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions involving the use of real property related data designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant records and images; and provides banking, trust and investment advisory services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies and the District of Columbia. The Company also offers title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar products and services internationally. This segment also provides closing and/or escrow services, accommodates tax-deferred exchanges of real estate, maintains, manages and provides access to title plant records and images and provides banking, trust and investment advisory services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies and the District of Columbia. The Company also offers title

insurance and other insurance and guarantee products, as well as ~~similar or~~ related ~~products and~~settlement services ~~either directly or through joint ventures~~ in foreign countries, including Canada, the United Kingdom, Australia and various other established and emerging markets.

The Company’s specialty insurance segment issues property and casualty insurance policies and sells home warranty products. The property and casualty insurance business provides insurance coverage to residential homeowners and renters for liability losses and typical hazards such as fire, theft, vandalism and other types of property damage. This business is licensed to issue policies in all 50 states and actively issues policies in 43 states. In its largest market, California,
·
The Company’s specialty insurance segment issues property and casualty insurance policies and sells home warranty products. The property and casualty insurance business provides insurance coverage to residential homeowners and renters for liability losses and typical hazards such as fire, theft, vandalism and other types of property damage. This business is licensed to issue policies in all 50 states and the District of Columbia and actively issues policies in 46 states. In certain markets it also offers preferred risk auto insurance to better compete with other carriers offering bundled home and auto insurance. The home warranty business provides residential service contracts that cover residential systems, such as heating and air conditioning systems, and ~~certain~~ appliances against failures that occur as the result of normal usage during the coverage period. This business currently operates in 39 states and the District of Columbia.

The corporate function consists primarily of certain financing facilities as well as the corporate services that support the Company’s business operations.

Critical Accounting ~~Policies and~~ Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. The Company’s management considers the accounting policies described below to be ~~critical~~the most dependent on the application of estimates and assumptions in preparing the Company’s consolidated financial statements. ~~These policies require management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures of contingencies.~~ See Note 1 Description of the Company to the consolidated financial statements for a more detailed description of the Company’s significant accounting policies.

R~~evenue~~~~recognition.~~ Title premiums on policies issued directly by the Company are recognized on the effective date of the title policy and escrow fees are recorded upon close of the escrow. Revenues from title policies issued by independent agents are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. Revenues earned by the Company’s title plant management business are recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery.

Direct premiums of the Company’s specialty insurance segment include revenues from home warranty contracts which are recognized ratably over the 12-month duration of the contracts, and revenues from property and casualty insurance policies which are also recognized ratably over the 12-month duration of the policies.

Interest on loans of the Company’s thrift subsidiary is recognized on the outstanding principal balance on the accrual basis. Loan origination fees and related direct loan origination costs are deferred and recognized over the life of the loan. Revenues earned by the other products in the Company’s trust and banking operations are recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery.

Provision for policy losses. The Company provides for title insurance losses by a charge to expense when the related premium revenue is recognized. The amount charged to expense is generally determined by applying a rate (the loss provision rate) to total title insurance premiums and escrow fees. The Company’s management estimates the loss provision rate at the beginning of each year and reassesses the rate quarterly to ensure that the resulting incurred but not reported (“IBNR”) loss reserve and known claims reserve included in the Company’s consolidated balance sheets together reflect management’s best estimate of the total costs required to settle all IBNR and known claims. If the ending IBNR reserve is not considered adequate, an adjustment is recorded.

claims experience and information provided by in-house claims and operations personnel. Current economic and business trends are also reviewed and used in the reserve analysis. These include real estate and mortgage markets conditions, changes in residential and commercial real estate values, and changes in the levels of defaults and foreclosures that may affect claims levels and patterns of emergence, as well as any company-specific factors that may be relevant to past and future claims experience. Results from the analysis include, but are not limited to, a range of IBNR reserve estimates and a single point estimate for IBNR as of the balance sheet date.

For recent policy years at early stages of development (generally the last three years), IBNR is estimated using a combination of expected loss rate and multiplicative loss development factor calculations. For more mature policy years, IBNR generally is estimated using multiplicative loss development factor calculations. The expected loss rate method estimates IBNR by applying an expected loss rate to total title insurance premiums and escrow fees, and adjusting for policy year maturity using ~~the~~ estimated loss development patterns. Multiplicative loss development factor calculations estimate IBNR by applying factors derived from loss development patterns to losses realized to date. The expected loss rate and loss development patterns are based on historical experience and the relationship of the history to the applicable policy years. This is a generally accepted actuarial method of determining IBNR for policy years at early development ages. IBNR calculated in this way differs from the IBNR that a multiplicative loss development factor calculation would produce. Factor-based development effectively extrapolates results to date forward through the lifetime of the policy year’s development.

For more mature policy years (generally, policy years aged more than three years), IBNR is estimated using multiplicative loss development factor calculations. These years were exposed to adverse economic conditions during 2007 through 2011 that may have resulted in acceleration of claims and one-time losses. The possible extrapolation of these losses to future development periods by using factors was considered. The impact of economic conditions during 2007 through 2011 is believed to account for a much less significant portion of losses on policy years 2004 and prior than on more recent policy years. Policy years 2004 and prior were at relatively mature ages when the adverse development period began in 2007, and much of their losses had already been incurred by then. In addition, the loss development factors for policy years 2004 and prior are low enough that the potential for over-extrapolation is limited to an acceptable level.

The Company utilizes an independent third party actuary who produces a report with estimates and projections of the same financial items described above. The third party actuary’s analysis uses generally accepted actuarial methods that may in whole or in part be different from those used by the in-house actuary. The third party actuary’s report is used to assess the reasonableness of the in-house analysis.

The Company’s management uses the IBNR point estimate from the in-house actuary’s analysis and other relevant information it may have concerning claims to determine what it considers to be the best estimate of the total amount required for the IBNR reserve.

Title insurance policies are long-duration contracts with the majority of the claims reported to the Company within the first few years following the issuance of the policy. Generally, 7570% to ~~85 percent~~80% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. ~~A material change in expected ultimate losses and corresponding loss rates for policy years older than six years, while possible, is not considered reasonably likely by the Company. However, changes~~Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Based on historical experience, ~~the Company~~management believes ~~that~~ a 50 basis point change to ~~one or more of~~ the loss rates for the most recent policy years, positive or negative, is reasonably likely given the long duration nature of a title insurance policy. IfFor example, if the expected ultimate losses for each of the last six policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be an increase or decrease, as the case may be, of ~~$120.4~~$98.7 million. A material change in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to be ~~inaccurate and~~materially different from actual claims ~~experience may vary from expected claims~~ experience.

The Company provides for property and casualty insurance losses when the insured event occurs. The Company provides for claims losses relating to its home warranty business based on the average cost per claim as applied to the total of new claims incurred. The average cost per home warranty claim is calculated using the average of the most recent 12 months of claims ~~experience.~~experience adjusted for estimated future increases in costs.

A summary of the Company’s loss reserves ~~broken down into its components of~~is as follows:


(in thousands, except percentages)	December 31, 2014				December 31, 2013
Known title claims	$	165,330	16.3	%	$	135,478	13.3	%
Incurred but not reported claims		802,069	79.3	%		840,104	82.5	%
Total title claims		967,399	95.6	%		975,582	95.8	%
Non-title claims		44,381	4.4	%		42,783	4.2	%
Total loss reserves	$	1,011,780	100.0	%	$	1,018,365	100.0	%

Activity in the reserve for known title claims is summarized as follows:

	December 31,
	2014			2013		2012
	(in thousands)
Balance at beginning of year	$	135,478		$	133,070	$	162,019
Provision transferred from IBNR title claims related to:
Current year		29,939			17,720		18,592
Prior years		274,481			280,373		233,258
		304,420			298,093		251,850
Payments, net of recoveries, related to:
Current year		22,272			15,355		16,044
Prior years		249,851			280,627		269,166
		272,123			295,982		285,210
Other		(2,445	)		297		4,411
Balance at end of year	$	165,330		$	135,478	$	133,070

The provision transferred from IBNR title claims related to current year increased by $12.2 million in 2014 from 2013 and decreased by $0.9 million in 2013 from 2012 and payments, net of recoveries, related to current year increased by $6.9 million in 2014 from 2013 and decreased by $0.7 million in 2013 from 2012, reflecting variability in claims volumes characteristic of a policy year during its first year of development. In addition, 2014 experienced a higher level of fraud losses when compared to 2013 and 2012.

The provision transferred from IBNR title claims related to prior years decreased by $5.9 million and payments, net of recoveries, related to prior years decreased by $30.8 million in 2014 from 2013. The 11.0% decline in payments exceeded the 2.1% decline in provision transferred primarily due to the timing of a large commercial claim settlement payment. The provision for the large commercial claim was transferred from IBNR during 2014, while the settlement payment occurred in 2015.

The provision transferred from IBNR title claims related to prior years increased by $47.1 million and payments, net of recoveries, related to prior years increased by $11.5 million in 2013 from 2012. These increases were primarily attributable to increased domestic lenders claims for policy years 2004 through 2008 and, to a lesser extent, large commercial claims above expected levels, mainly from mechanics liens. The increase in domestic lenders claims was primarily due to mortgage lenders and servicers processing a large volume of foreclosures during 2013. As foreclosure processing increases, lenders claims generally increase, because lenders claims typically come from foreclosures in which the lender suffers a loss.

Activity in the reserve for incurred but not reported ~~and non-title~~title claims is summarized as follows:

(in thousands except percentages)    December 31, 2011 December 31, 2010
Known title claims
   $ 162,019       15.9 % $ 192,268       17.4 %
IBNR
   816,603       80.5 % 875,627       79.0 %






Total title claims
   978,622       96.4 % 1,067,895       96.4 %
Non-title claims
   36,054       3.6 % 40,343       3.6 %






Total loss reserves
   $ 1,014,676       100.0 % $ 1,108,238       100.0 %

	December 31,
	2014		2013			2012
	(in thousands)
Balance at beginning of year	$	840,104	$	805,430		$	816,603
Provision related to:
Current year		190,971		196,275			173,335
Prior years		62,159		148,454			62,620
		253,130		344,729			235,955
Provision transferred to known title claims related to:
Current year		29,939		17,720			18,592
Prior years		274,481		280,373			233,258
		304,420		298,093			251,850
Other		13,255		(11,962	)		4,722
Balance at end of year	$	802,069	$	840,104		$	805,430

The provision related to current year decreased by $5.3 million, or 2.7%, in 2014 from 2013. This decrease was attributable to a 7.6% decline in title premiums and escrow fees in 2014 from 2013, partly offset by a higher current year loss rate in 2014 when compared to 2013. The current year loss rate in 2014 was 5.3% compared to 5.0% in 2013.

The provision related to current year increased by $22.9 million, or 13.2%, in 2013 from 2012. This increase was attributable to a 12.9% increase in title premiums and escrow fees in 2013 from 2012.

For further discussion of title provision recorded in 2014, 2013 and 2012, see Results of Operations, pages 37 and 38.

Fair ~~Value~~value of ~~Investment Portfolio.~~investment portfolio. The Company ~~classifies~~categorizes the fair value of its debt and equity securities using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. The hierarchy level assigned to each security in the Company’s available-for-sale portfolio iswas based on management’s assessment of the transparency and reliability of the inputs used into estimate the ~~valuation of such instrument~~fair values at the measurement date. ~~The three hierarchy levels are defined as follows:~~

~~Level 1—Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of equity securities are classified as Level 1.~~

Level 2—Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The Level 2 category includes U.S. Treasury bonds, municipal bonds, foreign bonds, governmental agency bonds, governmental agency mortgage-backed securities and corporate debt securities, many of which are actively traded and have market prices that are readily verifiable.

~~Level 3—Valuations based on inputs that are unobservable and significant~~See Note 15 Fair Value Measurements to the ~~overall fair value measurement, and involve management judgment. The Level 3 category includes non-agency mortgage-backed securities which are currently not actively traded.~~

~~If the inputs used to measure fair value fall in different levels~~consolidated financial statements for a more detailed description of the ~~fair value~~three-level hierarchy and a ~~financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.~~ description for each level.

The valuation techniques and inputs used to estimate the fair value of the Company’s debt and equity securities are summarized as follows:

Fair value of debt securities

The fair value of debt securities was based on the market values obtained from an independent pricing ~~service~~services that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established independent broker-dealers. The independent pricing ~~service monitors~~services monitor market indicators, industry and economic events, and for broker-quoted only securities, ~~obtains~~obtain quotes from market makers or broker-dealers that ~~it recognizes~~they recognize to be market participants. The pricing ~~service utilizes~~services utilize the market approach in determining the fair value of the debt securities held by the Company. ~~Additionally, the~~The Company obtains an understanding of the valuation models and assumptions utilized by the ~~service~~services and has controls in place to determine that the values provided represent fair value. The Company’s validation procedures include comparing prices received from the pricing ~~service~~services to quotes received from other third party sources for certain securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value measurements provided by the pricing ~~service.~~services.

include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds. The fair value of non-agency mortgage-backed securities was obtained from the independent pricing ~~service~~services referenced above and subject to the Company’s validation procedures discussed above. However, ~~due to the fact that~~since these securities were not actively traded and there ~~was less~~were fewer observable inputs available requiring the pricing ~~service~~services to use more judgment in determining the fair value of the securities, ~~therefore~~they were classified as Level 3.

The significant unobservable inputs used in the ~~Company classified~~fair value measurement of the Company’s non-agency mortgage-backed securities ~~as Level 3.~~include prepayment rates, default rates and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for default rates is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

Other-than-temporary impairment–debt securities

If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is other-than-temporarily impaired and it is written down to fair value with all losses recognized in earnings. As of December 31, ~~2011,~~2014, the Company ~~does~~did not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell debt securities before recovery of their amortized cost basis.

If the Company does not expect to recover the amortized cost basis of a debt security with declines in fair value (even if the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt ~~security before the recovery of its remaining amortized cost basis)~~security), the losses the Company considers to be the credit portion of the other-than-temporary impairment loss (“credit loss”) is recognized in earnings and the non-credit portion is recognized in other comprehensive income. The credit loss is the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted at the rate implicit in the security immediately prior to the recognition of the other-than-temporary impairment.

The Company determines if a non-agency mortgage-backed security in a loss position is other-than-temporarily impaired by comparing the present value of the cash flows expected to be collected from the security to its amortized cost basis. If the present value of the cash flows expected to be collected exceed the amortized cost of the security, the Company concludes that the security is not other-than-temporarily impaired. The Company performs this analysis on all non-agency mortgage-backed securities in its portfolio that are in an unrealized loss position. For the securities that were determined not to be other-than-temporarily impaired at December 31, 2014, the present value of the cash flows expected to be collected exceeded the amortized cost of each security.

Cash flows expected to be collected for each non-agency mortgage-backed security are estimated by analyzing loan-level detail to estimate future cash flows from the underlying assets, which are then applied to the security based on the underlying contractual provisions of the securitization trust that issued the security (e.g., subordination levels, remaining payment terms, etc.). The Company uses third-party software to determine how the underlying collateral cash flows will be distributed to each security issued from the securitization trust. The primary assumptions used in estimating future collateral cash flows are prepayment speeds, default rates and loss severity. In developing these assumptions, the Company considers the financial condition of the borrower, loan to value ratio, loan type and geographical location of the underlying property. The Company utilizes publicly available information related to specific assets, generally available market data such as forward interest rate curves and ~~CoreLogic’s~~ securities, loans and property data and market analytics ~~tools.~~tools provided through a third party.

The table below summarizes the primary assumptions used at December 31, ~~2011~~2014 in estimating the cash flows expected to be collected for these securities.

	Weighted average			Range
Prepayment speeds		10.0	%	8.8	%	–	14.0	%
Default rates		2.5	%	1.8	%	–	3.7	%
Loss severity		18.7	%	3.6	%	–	28.5	%


	~~Weighted average~~			~~Range~~
~~Prepayment speeds~~		~~8.0~~	%		~~6.4%—10.0%~~
~~Default rates~~		~~5.1~~	%		~~1.8%—10.5%~~
~~Loss severity~~		~~30.4~~	%		~~7.9%—39.7%~~

As a result of the Company’s security-level review, the Company recognized $1.7 million and $3.6 million of other-than-temporary impairments considered to be credit related on its non-agency mortgage-backed securities in earnings for the years ended December 31, 2014 and 2012, respectively. The Company did not recognize any other-than-temporary impairments considered to be credit related in 2013. It is possible that the Company could recognize additional other-than-temporary impairment losses on securities it owns at December 31, 2014 if future events or information cause it to determine that a decline in fair value is other-than-temporary.

Fair value of equity securities

The fair value of equity securities, including exchange traded funds, mutual funds, marketable common and preferred ~~and common~~ stocks, ~~was~~were based on quoted market prices for identical assets that are readily and regularly available in an active market.

Other-than-temporary impairment–equity securities

When ~~in the opinion of management,~~ a decline in the fair value of an equity security, ~~(including~~including common and preferred ~~stock) and, prior to the first quarter of 2009, a debt security~~stock, is considered to be other-than-temporary, such equity security is written down to its fair value. When assessing if a decline in fair value is other-than-temporary, the factors considered include the length of time and extent to which fair value has been below cost, the probability that the Company will be unable to collect all amounts due under the contractual terms of the security, the seniority ~~and duration~~ of the securities, issuer-specific news and other developments, the financial condition and prospects of the issuer (including credit ratings), macro-economic changes (including the outlook for industry sectors, which includes government policy initiatives) and the Company’s ability and intent to hold the ~~investment~~security for a period of time sufficient to allow for any anticipated recovery.

When an equity security has been in an unrealized loss position for greater than twelve months, the Company’s review of the security includes the above noted factors as well as other evidence that might exist supporting the ~~evidence, if any exists, to support~~view that the security will recover its value in the foreseeable future, typically within the next twelve months. If objective, substantial evidence does not indicate a likely recovery during that timeframe, the Company’s policy is that such losses are considered other-than-temporary and therefore an impairment loss is recorded. The Company did not record any other-than-temporary impairment losses related to its equity securities for the years ended December 31, 2014, 2013 and 2012.

Litigation and regulatory contingencies. The Company and its subsidiaries are parties to a number of ongoing routine and non-ordinary course legal proceedings. For those lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded. Actual losses may materially differ from the amounts recorded. For a substantial majority of these lawsuits it is not possible to assess the probability of loss. Most of these lawsuits are putative class actions which require a plaintiff to satisfy a number of procedural requirements before proceeding to trial. As a result of, among other factors, ambiguities and inconsistencies in the myriad laws applicable to the Company’s business and the uniqueness of the factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss until a court has finally determined that a plaintiff has satisfied applicable procedural requirements. Furthermore, because most of these lawsuits are putative class actions, it is often impossible to estimate the possible loss or a range of loss amounts, even where the Company has determined that a loss is reasonably possible. In addition, many of the Company’s businesses are regulated by various federal, state, local and foreign governmental agencies and are subject to numerous statutory guidelines. These regulations and statutory guidelines often are complex, inconsistent or ambiguous, which results in additional uncertainty as to the outcome of a given lawsuit—including the amount of damages a plaintiff might be afforded—or makes it difficult to analogize experience in one case or jurisdiction to another case or jurisdiction.

~~At December 31, 2011, the~~Business Combinations. The Company owned 8.9 million shares of CoreLogic common stock with a cost basis of $167.6 million and an estimated fair value of $115.5 million. While the Company’s investment in CoreLogic common stock has not been in an unrealized loss position for greater than twelve months, the Company assessed its investment in CoreLogic for other-than-temporary impairment due to the significant amount of shares owned. In August 2011, CoreLogic announced that its board of directors had formed a committee of independent directors to explore options aimed at enhancing shareholder value including cost savings initiatives, an evaluation of CoreLogic’s capital structure, repurchases of debt and common stock, the disposition of business lines, the sale or business combination of CoreLogic and other alternatives. CoreLogic’s board of directors also announced that it retained a financial adviser to assist the committee in its evaluation. Based on the factors considered, the Company’s opinion is the decline inallocates the fair value of ~~CoreLogic’s common stock~~purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is ~~not other-than-temporary; therefore,~~recorded as goodwill. When determining the ~~unrealized loss~~fair values of ~~$52.1 million was recorded~~assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in ~~accumulated other comprehensive loss on the Company’s consolidated balance sheet. The factors considered by the Company~~valuing certain intangible assets include, but are not limited to, ~~(i) the~~future expected cash flows, useful lives, and discount rates. Management’s estimates of fair value ofare based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Other estimates associated with the ~~common stock has been below cost~~accounting for ~~less than twelve months, (ii)~~acquisitions may change as additional information becomes available regarding the ~~Company has the ability~~assets acquired and ~~intent to hold the common stock~~liabilities assumed.

Impairment assessment for a period of time sufficient to allow for recovery, (iii) the process of exploring options aimed at enhancing shareholder value in which CoreLogic is engaged, and (iv) in January 2012, CoreLogic issued updated 2011 guidance and full year 2012 guidance containing information that the Company assessed as positive. It is possible that the Company could recognize an other-than-temporary impairment related to its CoreLogic common stock if future events or information cause it to determine that the decline in value is other-than-temporary. The Company will continue to closely monitor and regularly review its investment in CoreLogic common stock.

goodwill. ~~Impairment testing for goodwill and other indefinite-lived intangible assets.~~The Company is required to perform an annual goodwill impairment ~~test for goodwill and other indefinite-lived intangible assets~~assessment for each reporting unit. This annual test, which the Company has elected to perform every fourth quarter, utilizes a variety of valuation techniques, all of which require it to make estimates and judgments. Fair value is determined by employing an expected present value technique, which utilizes multiple cash flow scenarios that reflect a range of possible outcomes and an appropriate discount rate. The use of comparative market multiples (the “market approach”) compares the reporting unit to other comparable companies (if such comparables are present in the marketplace) based on valuation multiples to arrive at a fair value. The Company also uses certain of these

valuation techniques in accounting for business combinations, primarily in the determination of the fair value of acquired assets and liabilities. In assessing the fair value, the Company utilizes the results of the valuations (including the market approach to the extent comparables are available) and considers the range of fair values determined under all methods and the extent to which the fair value exceeds the book value of the equity. The Company’s four reporting units are title insurance, home warranty, property and casualty insurance and trust and other services. The ~~Company’s policy is~~Company has elected to perform anthis annual ~~impairment test for each reporting unit~~assessment in the fourth quarter of each fiscal year or sooner if circumstances indicate a possible impairment.

Based on current guidance, the Company has the option to perform a qualitative assessment to determine if the fair value is more likely than not (i.e. a likelihood of greater than 50%) less than the carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test, or may choose to forego the qualitative assessment and perform the quantitative impairment test. The qualitative factors considered in this assessment may include macroeconomic conditions, industry and market considerations, overall financial performance as well as other relevant events and circumstances as determined by the Company. The Company evaluates the weight of each factor to determine whether it is more likely than not that impairment may exist. If the results of the qualitative assessment indicate the more likely than not threshold was not met, the Company may choose not to perform the quantitative impairment test. If, however, the more likely than not threshold is met, the Company performs the quantitative test as required and discussed below.

Management’s quantitative impairment testing process includes two steps. The first step (“Step 1”) compares the fair value of each reporting unit to its ~~book value.~~carrying amount. The fair value of each reporting unit is determined by using discounted cash flow analysis and market approach valuations. If the fair value of the reporting unit exceeds its ~~book value,~~carrying amount, the goodwill is not considered impaired and no additional analysis is required. However, if the ~~book value~~carrying amount is greater than the fair value, a second step (“Step 2”) must be completed to determine if the fair value of the goodwill exceeds the ~~book value~~carrying amount of ~~the~~ goodwill.

Step 2 involves calculating an implied fair value of goodwill for each reporting unit for which ~~the first step~~Step 1 indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in ~~the first step,~~Step 1, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment loss is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

The quantitative impairment test for goodwill utilizes a variety of valuation techniques, all of which require the Company to make estimates and judgments. Fair value is determined by employing an expected present value technique, which utilizes multiple cash flow scenarios that reflect a range of possible outcomes and an appropriate discount rate. The use of comparative market multiples (the “market approach”) compares the reporting unit to other comparable companies (if such comparables are present in the marketplace) based on valuation multiples to arrive at a fair value. In assessing the fair value, the Company utilizes the results of the valuations (including the market approach to the extent comparables are available) and considers the range of fair values determined under all methods and the extent to which the fair value exceeds the carrying amount of the equity or asset.

The valuation of ~~goodwill requires~~each reporting unit includes the use of assumptions and estimates of many critical factors, including revenue growth rates and operating margins, discount rates and future market conditions, determination of market multiples and the establishment of a control premium, among others. Forecasts of future operations are based, in part, on operating results and the Company’s expectations as to future market conditions. These types of analyses contain uncertainties because they require the Company to make assumptions and to apply judgments to estimate industry economic factors and the profitability of future business strategies. However, if actual results are not consistent with the Company’s estimates and assumptions, the Company may be exposed to future impairment losses that could be material.

The Company ~~completed~~elected to perform qualitative assessments for 2014 and 2013, the ~~required annual impairment testing for goodwill and other finite-lived intangible assets for~~results of which supported the ~~years ended December 31, 2011 and 2010, in~~conclusion that the ~~fourth quarter of each year. In 2011 and 2010, management concluded that, based on its assessment~~fair values of the ~~reporting units’ operations, the markets in which the~~Company’s reporting units ~~operate and the long-term prospects for those reporting units that the~~were not more likely than not ~~threshold for decline in value had~~less than their carrying amounts and, therefore, a quantitative assessment was not ~~been met~~considered necessary. For 2012, the Company performed a quantitative assessment and determined that the fair values of its reporting units exceeded their carrying amounts and, therefore, no ~~triggering events requiring an earlier~~additional analysis ~~had occurred.~~was required. As a result of these assessments, the Company did not record any goodwill impairment losses for 2014, 2013 or 2012.

Impairment ~~testing~~assessment for ~~long-lived~~other intangible assets. Management uses estimated future cash flows (undiscounted and excluding interest) to measure the recoverability of ~~long-lived assets held and used, including~~ intangible assets with finite lives, whenever events or changes in circumstances indicate that the carrying value ~~of an asset~~ may not be fully recoverable. ~~At such time impairment in value of a long-lived asset is identified,~~If the ~~impairment is measured as the amount by which~~undiscounted cash flow analysis indicates that the carrying amount is not recoverable, an impairment loss is recorded for the excess of the ~~long-lived asset exceeds~~carrying amount over its fair value.

The Company’s other indefinite-lived intangible assets consist of licenses which are not amortized but rather assessed for impairment by comparing the fair value of the license with its carrying value at least annually or when an indicator of potential impairment has occurred. Management’s impairment assessment may involve calculating the fair value by using a discounted cash flow analysis or through a market approach valuation. If the fair value of the asset exceeds its carrying amount, the asset is not considered impaired and no additional analysis is required. However, if the carrying amount is greater than the fair value, an impairment loss is recorded equal to the excess. The impairment loss establishes a new basis and the subsequent reversal of impairment losses is not permitted.

Impairment of equity method investments in affiliates. The carrying value of equity method investments in affiliates is written down, or impaired, to fair value when a decline in value is considered to be other-than-temporary. In making the determination as to whether an individual investment in an affiliate was impaired, the Company assessed the then-current and expected financial condition of each relevant entity, including, but not limited to, the anticipated ability of the entity to make its contractually required payments to the Company (with respect to debt obligations to the Company), the results of valuation work performed with respect to the entity, the entity’s anticipated ability to generate sufficient cash flows and the market conditions in the industry in which the entity was operating. The Company recognized impairment losses of $22.5 million, $7.8 million and $7.1 million on its equity method investments in 2014, 2013 and 2012, respectively.

Income taxes. The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The

Company evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is ~~“more~~considered more likely than ~~not”~~not that some or all of the deferred tax assets will not be realized.

The Company recognizes the effect of income tax positions only if sustaining those positions is ~~“more~~considered more likely than not.” Changes in recognition or measurement of uncertain tax positions are reflected in the period in which a change in judgment occurs. The Company recognizes interest and penalties, if any, related to uncertain tax positions in tax expense.

Depreciation and amortization lives for assets. Management is required to estimate the useful lives of several asset classes, including ~~capitalized data,~~property and equipment, internally developed software and other intangible assets. The estimation of useful lives requires a significant amount of judgment related to matters such as future changes in technology, legal issues related to allowable uses of data and other matters.

~~Share-based compensation.~~ The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized in the Company’s financial statements over the requisite service period of the award using the straight-line method for awards that contain only a service condition and the graded vesting method for awards that contain a performance or market condition. The share-based compensation expense recognized is based on the number of shares ultimately expected to vest, net of forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company’s primary means of share-based compensation is granting restricted stock units (“RSUs”). RSUs granted generally have graded vesting and include a service condition; and for certain key employees and executives also include either a performance or market condition. RSUs receive dividend equivalents in the form of RSUs having the same vesting requirements as the RSUs initially granted.

~~As of December 31, 2011, all stock options issued under the Company’s plans are vested and no share-based compensation expense related to such stock options remains to be recognized.~~

In addition, the Company has an employee stock purchase plan that allows eligible employees to purchase common stock of the Company at 85.0% of the closing price on the last day of each month. The Company recognizes an expense in the amount equal to the discount.

Employee benefit plans. The Company recognizes the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability on its consolidated balance sheets and recognizes changes in the funded status in the year in which changes occur, through accumulated other comprehensive ~~income (loss).~~loss. The funded status is measured as the difference between the fair value of plan assets and benefit obligation (the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for the other postretirement plans). Actuarial gains and losses and prior service costs and credits that have not been recognized as a component of net periodic benefit cost previously are recorded as a component of accumulated other comprehensive ~~income (loss).~~loss. Plan assets and obligations are measured as of December 31.

The assumptions that have had the most significant impact to net periodic costs are the discount rate and expected long-term rate of return on plan assets. The discount rate assumption reflects the yield available on high-quality, fixed-income

debt securities that match the expected timing of the benefit obligation payments. Assumptions for the expected long-term rate of return on assets of the defined benefit pension plans are based on future expectations for returns for each asset class based on the calculated market-related value of plan assets and the effect of periodic target asset allocation rebalancing, adjusted for the payment of reasonable expenses of the plan from plan assets. See Note 14 Employee Benefit Plans to the consolidated financial statements for a further description of the expected long-term rate of return on plan assets as well as asset allocation targets. Additionally, the Company adopted updated mortality tables published by the Society of Actuaries in October 2014. The revised RP-2014 tables reflect substantial life expectancy improvements relative to the last tables published in 2000.

Weighted-average actuarial assumptions used to determine costs for the plans were as follows:

	December 31,
	2014			2013
Defined benefit pension plans
Discount rate		4.97	%		4.18	%
Rate of return on plan assets		6.50	%		6.50	%
Unfunded supplemental benefit plans
Discount rate		4.80	%		3.91	%

Weighted-average actuarial assumptions used to determine benefit obligations for the plans were as follows:

	December 31,
	2014			2013
Defined benefit pension plans
Discount rate		4.07	%		4.97	%
Unfunded supplemental benefit plans
Discount rate		4.00	%		4.80	%

Recently Adopted Accounting ~~Pronouncements:~~

Pronouncements

In ~~January 2010,~~July 2013, the Financial Accounting Standards Board (“FASB”) issued updated guidance ~~related~~intended to ~~fair value measurements and disclosures, which requires~~eliminate the diversity in practice regarding financial statement presentation of an unrecognized tax benefit when a ~~reporting entity to disclose separately,~~net operating loss carryforward, a ~~reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on~~similar tax loss, or a gross basis rather than one net number). The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2010 and for interim periods within the fiscal year. Except for the disclosure requirements, the adoption of this guidance had no impact on the Company’s consolidated financial statements.

~~In July 2010, the FASB issued updated guidance related to~~tax credit risk disclosures for finance receivables and the related allowance for credit losses. The updated guidance requires entities to disclose information at disaggregated levels, specifically defined as “portfolio segments” and “classes”. Expanded disclosures include, among other things, roll-forward schedules of the allowance for credit losses and information regarding the credit quality of receivables (including their aging) as of the end of a reporting period. The updated guidance is effective for interim and annual reporting periods ending after December 15, 2010, although the disclosures of reporting period activity are required for interim and annual reporting periods beginning after December 15, 2010. Except for the disclosure requirements, the adoption of this guidance had no impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued updated guidance related to disclosure of supplementary pro forma information in connection with business combinations. The updated guidance clarifies the acquisition date that should be used for reporting pro forma financial information when comparative financial statements are presented. The updated guidance also expands supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The updated guidance is effective for annual reporting periods beginning on or after December 15, 2010. The adoption of this guidance had no impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued updated guidance related to when goodwill impairment testing should include Step 2 for reporting units with zero or negative carrying amounts. The updated guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts requiring those entities to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairmentcarryforward exists. ~~In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist.~~ The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2010.~~2013, with early adoption permitted. The adoption of ~~this~~the guidance had no impact on the Company’s consolidated financial statements.

Pending Accounting Pronouncements

In ~~September 2011,~~June 2014, the FASB issued updated guidance ~~that is~~ intended to ~~simplify how entities test goodwill~~eliminate the diversity in practice regarding share-based payment awards that include terms which provide for ~~impairment.~~a performance target that affects vesting being achieved after the requisite service period. The new standard requires that a performance target which affects vesting and could be achieved after the requisite service period be treated as a performance condition that affects vesting and should not be reflected in estimating the grant-date fair value. The updated guidance ~~permits entities~~is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company expects the adoption of this guidance to ~~first assess qualitative factors~~have no impact on its consolidated financial statements.

In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within and across industries, and across capital markets. The new revenue standard contains principles that an entity will apply to determine ~~whether it~~the measurement of revenue and the timing of recognition. The underlying principle is ~~more likely than not~~that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the ~~fair value~~entity expects to be entitled to in exchange for those goods or services. Revenue from insurance contracts is not within the scope of ~~a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test as required under current accounting~~this guidance. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2011. Early~~2016, with early adoption is permitted, including for interim and annual goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the more recent interim and annual period have not yet been issued.prohibited. The Company ~~adopted this guidance in~~is currently assessing the ~~fourth quarter of 2011, in connection with performing its annual goodwill impairment test and elected to bypass the qualitative assessment and performed the first step~~impact of the ~~two-step goodwill impairment test. The adoption of this~~new guidance ~~had no impact~~ on ~~the Company’s~~its consolidated financial statements.

~~Pending Accounting Pronouncements:~~

In ~~December 2011,~~April 2014, the FASB issued updated guidance ~~requiring entities~~which changes the criteria for determining which disposals are required to ~~disclose both gross information~~be presented as discontinued operations and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.modifies related disclosure requirements. The updated guidance is effective for interim and annual reporting periods beginning on or after January 1, 2013. Except for the disclosure requirements, management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

requires consecutive presentation of the statement of net income and other comprehensive income or in a single continuous statement of comprehensive income. In addition, the option to present reclassification adjustments in the notes to financial statements has been eliminated. The updated guidance is effective for interim and annual reporting periods beginning after December ~~15, 2011. In December 2011, the FASB issued updated guidance deferring the effective date of the change in presentation of reclassification adjustments. Management~~31, 2014, with early adoption permitted. The Company expects ~~the adoption of the guidance that remains effective beginning in the first quarter of 2012 to have no impact on the Company’s consolidated financial statements.~~

In May 2011, the FASB issued updated guidance that is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with generally accepted accounting principles and International Financial Reporting Standards. The amendments are of two types: (i) those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The update is effective for interim and annual periods beginning after December 15, 2011. Except for the disclosure requirements, management does not expect the adoption of this guidance to have ~~a material~~no impact on ~~the Company’s~~its consolidated financial statements.

In October 2010, the FASB issued updated guidance related to accounting for costs associated with acquiring or renewing insurance contracts. The updated guidance modifies the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal contracts. Under the updated guidance only costs based on successful efforts (that is, acquiring a new or renewal contract) including direct-response advertising costs are eligible for capitalization. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2011. Management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

Results of Operations

Overview

A substantial portion of the revenues for the Company’s title insurance and services segment results from the sale and refinancing of residential and commercial real estate. In the Company’s specialty insurance segment, revenues associated with the initial year of coverage in both the home warranty and property and casualty operations are impacted by ~~the level of real estate~~volatility in residential purchase transactions. Traditionally, the greatest volume of real estate activity, particularly residential ~~resale,~~purchase activity, has occurred in the spring and summer months. However, changes in interest rates, as well as other changes in general economic ~~factors,~~conditions in the United States and abroad, can cause fluctuations in the traditional pattern of real estate activity.

The Company’s total revenues for the year ended December 31, 2014 were $4.7 billion, which reflected a decrease of $0.3 billion, or 5.6%, when compared with $5.0 billion for the year ended December 31, 2013. This decline was primarily attributable to the significant decline in refinance activity during 2014 as a result of increases in mortgage interest rates, which was partially offset by increased revenues from residential purchase transactions and commercial business. Revenues from refinance transactions were down 43.2% and revenues from residential purchase transactions and commercial business were up 4.5% and 9.0%, respectively, in 2014 when compared to 2013.

~~Residential~~According to the Mortgage Bankers Association’s January 20, 2015 Mortgage Finance Forecast (the “MBA Forecast”), residential mortgage originations in the United States (based on the total dollar value of the transactions) decreased ~~19.7%~~39.2% in ~~2011~~2014 when compared with 2010, according to the Mortgage Bankers Association’s January 18, 2012 Mortgage Finance Forecast (the “MBA Forecast”). This decrease was due to a decline in both purchase and refinance activity.2013. According to the MBA Forecast, the dollar amount of purchase originations decreased 13.1% and refinance originations decreased ~~14.6%~~56.4%. The lower volume of domestic residential mortgage origination activity in 2014 contributed to a 1.8% decrease in domestic residential purchase orders closed per day and ~~21.9%, respectively,~~a 45.2% decrease in ~~2011~~domestic refinance orders closed per day by the Company’s direct title operations in 2014 when compared to 2013.

Given the backdrop of an improving economy, the Company believes that the housing market will continue to strengthen in 2015. In January 2015, refinance activity rose sharply in response to the unexpected decline in mortgage rates, driving total domestic title orders opened per day by the Company’s direct title operations up by 27.0% when compared with ~~2010. Residential mortgage~~January of last year. While the increase in refinance orders will provide short-term benefits, it’s uncertain how long this elevated level of activity will continue. With regards to the purchase market, the Company’s full-year expectation is for modest growth in originations, with some improvement in both transaction levels and home prices. The Company also expects continued strength in the ~~United States decreased 21.2% in 2010 when compared~~commercial market but with ~~2009 according~~declining growth rates.

The Consumer Financial Protection Bureau (“CFPB”) has broad authority to ~~the MBA Forecast. This decrease reflected decreases in purchase originations and refinance originations of 32.6% and 15.1%, respectively.~~

A low interest rate environment typically has a favorable impact on many of the Company’s businesses, however mortgage credit remains generally tight, which together with the uncertainty in general economic conditions, continues to impact the demand for most of the Company’s products and services.

~~Given the performance of~~regulate, among other areas, the mortgage and real estate markets in ~~2011~~matters pertaining to consumers. In addition to other activities, the CFPB has proposed and implemented regulations related to the simplification of mortgage disclosures and the ~~outlook for 2012,~~required delivery of documentation to consumers in connection with the closing of federally-regulated mortgage loans. Compliance with these integrated disclosure rules will require participants in the mortgage market, including the Company, ~~continued its expense management efforts. During 2011,~~to make significant changes to the ~~Company completed an expense reduction program, primarily directed at its shared services function~~manner in which they create, process, and deliver certain disclosures to consumers in connection with mortgage loan applications made on or after August 1, 2015. These changes could lead to lower mortgage volumes and/or delays in mortgage processing, particularly in the ~~title insurance~~early stages of implementation. Readiness for, and ~~services segment, that is~~

~~expected~~compliance with, these rules, also requires extensive planning; changes to yield approximately $40 million in annualized cost savings, which the Company began realizing in the third quarter of 2011. The program was incremental to the Company’s ongoing efforts to manage expenses to order volumes at the division level. Overall, the Company reduced its domestic employee countsystems, forms and processes; as well as heightened coordination among market participants, including by 6.3% and its office footprint by 9.1%, which contributed to a decrease in personnel and other operating expenses of 3.9% in 2011 compared to 2010. This reduction in expenses compares favorably to the 2.2% decrease in total revenues in 2011 compared to 2010.

~~Beginning at the end of September 2010, various lenders’ foreclosure processes came under the review and scrutiny of a number of regulators~~settlement service providers, such as the ~~state Attorneys General, the Federal Reserve~~Company and other agencies. Additionally, a growing number of court rulings have called into question some foreclosure practices and regulators have conducted and continue to conduct investigations into such practices. Many of the country’s largestits agents, with lenders and other key parties also have entered into consent decrees which require them, among other things, to alter their foreclosure processes. Though the ultimate effect of the court rulings, regulatory investigations, consent decrees and related matters pertaining to foreclosure processing are currently unknown,others. While there can be no assurance that the Company, ~~believes that, as a result of these matters,~~ its ~~revenues tied to foreclosures have declined, and may continue to decline, especially~~agents or other market participants will be successful in ~~the short term, and~~their implementation efforts, the Company may incur costs associated with its duty to defend its insureds’ title to foreclosed properties they have purchased. As of the current date, these matters have not had a material adverse effect on the Company. Though the Company will continue to monitor foreclosure developments, at this time, the Company does not believe these matters will have a material adverse effect on the Company in the future.

is actively preparing for compliance.

Title Insurance and Services


	2011			2010			2009			2011 vs. 2010						2010 vs. 2009						2014			2013			2012			2014 vs. 2013						2013 vs. 2012
										$ Change			% Change			$ Change			% Change												$ Change			% Change			$ Change			% Change
	(in thousands, except percentages)																					(in thousands, except percentages)
Revenues
Direct premiums and escrow fees	$	1,360,512		$	1,391,093		$	1,490,096		$	(30,581	)		(2.2	)	$	(99,003	)		(6.6	)	$	1,761,462		$	1,855,270		$	1,745,687		$	(93,808	)		(5.1	)	$	109,583			6.3
Agent premiums		1,491,943			1,517,704			1,524,120			(25,761	)		(1.7	)		(6,416	)		(0.4	)		1,841,618			2,044,862			1,709,905			(203,244	)		(9.9	)		334,957			19.6
Information and other		619,951			628,494			667,115			(8,543	)		(1.4	)		(38,621	)		(5.8	)		617,713			626,016			643,433			(8,303	)		(1.3	)		(17,417	)		(2.7	)
Investment income		73,883			75,517			104,553			(1,634	)		(2.2	)		(29,036	)		(27.8	)
Net investment income																							59,785			76,606			71,350			(16,821	)		(22.0	)		5,256			7.4
Net realized investment gains		1,906			8,694			14,509			(6,788	)		(78.1	)		(5,815	)		(40.1	)		25,551			3,334			33,709			22,217			NM	¹		(30,375	)		(90.1	)
Net other-than-temporary impairment losses recognized in earnings		(9,068	)		(7,912	)		(33,038	)		(1,156	)		(14.6	)		25,126			76.1

		3,539,127			3,613,590			3,767,355			(74,463	)		(2.1	)		(153,765	)		(4.1	)
Net other-than-temporary impairment losses																							(1,701	)		—			(3,564	)		(1,701	)		—			3,564			100.0
																							4,304,428			4,606,088			4,200,520			(301,660	)		(6.5	)		405,568			9.7
Expenses
Personnel costs		1,104,841			1,131,058			1,145,359			(26,217	)		(2.3	)		(14,301	)		(1.2	)		1,314,089			1,338,361			1,233,203			(24,272	)		(1.8	)		105,158			8.5
Premiums retained by agents		1,195,282			1,222,274			1,229,229			(26,992	)		(2.2	)		(6,955	)		(0.6	)		1,470,895			1,636,694			1,370,193			(165,799	)		(10.1	)		266,501			19.4
Other operating expenses		693,541			734,901			849,320			(41,360	)		(5.6	)		(114,419	)		(13.5	)		761,584			816,870			769,477			(55,286	)		(6.8	)		47,393			6.2
Provision for policy losses and other claims		270,697			180,821			205,819			89,876			49.7			(24,998	)		(12.1	)		253,122			343,461			237,427			(90,339	)		(26.3	)		106,034			44.7
Depreciation and amortization		69,229			72,566			76,038			(3,337	)		(4.6	)		(3,472	)		(4.6	)		77,820			66,956			67,610			10,864			16.2			(654	)		(1.0	)
Premium taxes		40,972			33,645			32,138			7,327			21.8			1,507			4.7			51,098			50,980			46,283			118			0.2			4,697			10.1
Interest		5,923			8,803			14,336			(2,880	)		(32.7	)		(5,533	)		(38.6	)		2,796			2,601			2,646			195			7.5			(45	)		(1.7	)
																							3,931,404			4,255,923			3,726,839			(324,519	)		(7.6	)		529,084			14.2
		3,380,485			3,384,068			3,552,239			(3,583	)		(0.1	)		(168,171	)		(4.7	)

Income before income taxes	$	158,642		$	229,522		$	215,116		$	(70,880	)		(30.9	)	$	14,406			6.7		$	373,024		$	350,165		$	473,681		$	22,859			6.5		$	(123,516	)		(26.1	)

Margins		4.5	%		6.4	%		5.7	%		(1.9	)%		(29.7	)		0.7	%		12.3			8.7	%		7.6	%		11.3	%		1.1	%		14.5			(3.7	)%		(32.7	)

(1)	Not meaningful

Direct premiums and escrow fees decreased ~~2.2%~~5.1% in ~~2011~~2014 from ~~2010~~2013 and ~~6.6%~~increased 6.3% in ~~2010~~2013 from ~~2009.~~2012. The decrease in ~~2011~~direct premiums and escrow fees in 2014 from ~~2010~~2013 was primarily due to a ~~decline~~decrease in the number of domestic title orders closed by the Company’s direct operations, ~~which reflected the decline in mortgage originations,~~partially offset ~~in part~~ by an increase in the domestic average revenues per order closed. The increase in ~~the~~direct premiums and escrow fees in 2013 from 2012 was primarily due to an increase in domestic average revenues per order closed, ~~was~~partially offset by a decrease in the number of domestic title orders closed by the Company’s direct operations. The domestic average revenues per order closed were $1,918, $1,513 and $1,309 for 2014, 2013 and 2012, respectively. The 26.7% increase in average revenues per order closed in 2014 from 2013 and the 15.6% increase in average revenues per order closed in 2013 from 2012 were primarily due to an increase in the mix of direct revenues generated from higher premium residential purchase and commercial ~~activity year over year, as well as an increase in the average revenues per~~transactions, higher real estate values, and a greater number of large commercial ~~order~~deals that closed ~~in 2011~~ when compared to ~~2010. The decrease in 2010 from 2009 was primarily due to a decline in~~ the number of title orders closed by the Company’s direct operations, which reflected the decline in mortgage originations, offset in part by an increase in the average revenues per order closed. The increase in the average revenues per order closed was primarily due to an increase in the mix of revenues from commercial activity year over year and increases in title insurance rates across 28 states. The average revenues per order closed were $1,483, $1,289 and $1,145 for 2011, 2010 and 2009, respectively.prior year. The Company’s direct title operations closed ~~917,500, 1,079,000~~816,400, 1,103,400 and ~~1,301,100~~1,191,800 domestic title orders during ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively. The 26.0% decrease in orders closed in 2014 from 2013 and the 7.4% decrease in orders closed in 2013 from 2012 were generally consistent with the declines in residential mortgage origination activity in the United States as reported in the MBA Forecast.

Agent premiums decreased ~~1.7%~~9.9% in ~~2011~~2014 from ~~2010~~2013 and ~~0.4%~~increased 19.6% in ~~2010~~2013 from ~~2009.~~2012. Agent premiums are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. As a result, there is generally a ~~one quarter~~ delay between the agent’s issuance of a title policy and the Company’s recognition of agent premiums. Therefore, full year agent premiums ~~primarily~~typically reflect mortgage origination activity from the fourth quarter of the prior year through the third quarter of the current year. The ~~decreases were primarily due to~~decrease in agent premiums in 2014 from 2013 was consistent with the ~~same factors impacting direct title operations offset~~10.3% decrease in ~~part by increases in market share. According to the American Land Title Association’s most recent available market share data,~~ the Company’s ~~agency market share was 15.6%, 15.2%~~direct premiums and ~~15.0% for~~escrow fees in the ~~nine~~twelve months ended September 30, ~~2011~~2014 as compared with the twelve months ended September 30, 2013. The increase in agent premiums in 2013 from 2012 was consistent with the 19.7% increase in the Company’s direct premiums and ~~for~~escrow fees in the ~~years~~twelve months ended ~~December 31, 2010 and 2009, respectively. The Company analyzes~~September 30, 2013 as compared with the terms and profitability of its title agency relationships and works to amend agent agreements where appropriate. Amendments that are sought include, among others, changing the percentage of premiums retained by the agent and the deductible paid by the agent on claims; if appropriate changes to the agreements cannot be made, the Company may elect to terminate certain agreements.

twelve months ended September 30, 2012.

Information and other ~~revenue~~revenues primarily consist of revenues generated from fees associated with title search and related reports, title and other real property records and images, other non-insured settlement services, and risk mitigation products and services. These revenues generally trend with direct premiums and escrow fees but are typically less volatile since a portion of the revenues are subscription based and do not fluctuate with transaction volumes.

Information and other revenues decreased ~~1.4%~~$8.3 million, or 1.3%, in ~~2011~~2014 from ~~2010~~2013 and ~~5.8%~~$17.4 million, or 2.7%, in ~~2010~~2013 from ~~2009.~~2012. Excluding the $55.7 million impact of new acquisitions for the year ended December 31, 2014, information and other revenues decreased $64.1 million, or 10.2%, in 2014 compared to 2013. The decrease in ~~2011~~2014 from ~~2010 was primarily attributable to~~2013, adjusted for the same factors affecting the direct title operations, offset in part by a 3.4% increase in international and other revenue, which was primarily attributable to the Company’s Canadian operations. The decrease in 2010 from 2009 was primarily attributable to the same factors affecting the direct title operations and, additionally, a 14.5% decrease in default information and other revenue mainly due to a decline in foreclosure activity as a resultimpact of ~~moratoriums on foreclosures and increased market competition, partially offset by increased loss mitigation activities.~~

~~Investment income decreased 2.2% in 2011 from 2010 and 27.8% in 2010 from 2009. The decrease in the current year~~new acquisitions, was primarily attributable to lower demand for the Company’s default and title plant information products as a result of the decrease in domestic loss mitigation, foreclosure and mortgage origination activities. The decrease in 2013 from 2012 was primarily attributable to lower demand for title related services in Canada due to a

decline in mortgage transactions resulting primarily from lower refinance transactions and lower demand for the Company’s title information products as a result of the decrease in domestic mortgage origination activity, partially offset by higher demand for the Company’s default information products as a result of the increase in domestic loss mitigation activity.

Net investment income decreased 22.0% in 2014 from 2013 and increased 7.4% in 2013 from 2012. The decrease in 2014 from 2013 was primarily attributable to higher impairment losses and lower equity in earnings related to investments accounted for using the equity method, partially offset by higher interest income from the investment portfolio. The increase in 2013 from 2012 was primarily attributable to increased dividend and interest income from the investment portfolio due to ~~lower yields. The decrease~~higher average volumes of equity and debt securities and investments in ~~2010 compared~~equity funds with higher dividend yields when comparing 2013 to ~~2009 was primarily due to~~2012. Net investment income for 2014, 2013 and 2012 included impairment losses recognized ~~from~~on investments accounted for using the ~~sale~~equity method of ~~title plant copies in 2009 while similar sales did not occur in 2010; lower interest income from deposits in 2010 due to lower yields;~~$22.5 million, $5.8 million and ~~a reduction in interest income from intercompany notes receivable when compared to 2009 due to a reduction in the notes receivable balance.~~

$5.9 million, respectively.

Net realized investment gains for the title insurance and services segment totaled ~~$1.9~~$25.6 million, ~~$8.7~~$3.3 million and ~~$14.5~~$33.7 million for ~~2011, 2010~~2014, 2013 and ~~2009, respectively. The gains for 2011, 2010~~2012, respectively, and ~~2009~~ were primarily from the ~~sale~~sales of debt and equity ~~securities~~securities. Net realized investment gains for 2014 and ~~to a lesser extent, certain fixed assets. The gains recognized in 2011 and 2010 were partially offset by $6.9~~2013 included $7.5 million and ~~$3.4~~$2.5 million, respectively, inof gains from the sale of real estate. Net realized investment gains for 2012 included $15.0 million of gains resulting from the sale of CoreLogic common stock during the third quarter of 2012. Net realized investment gains for 2014, 2013 and 2012 included impairment losses ~~recognized on other long-term investments.~~of $2.4 million, $1.1 million and $0.8 million, respectively, primarily related to software and certain non-marketable investments accounted for using the cost method.

~~Net other-than-temporary~~Other-than-temporary impairment losses for the title insurance and services segment totaled ~~$9.1 million, $7.9~~$1.7 million and ~~$33.0~~$3.6 million for ~~2011, 2010~~2014 and ~~2009,~~2012, respectively. No other-than-temporary impairment losses were recognized in 2013. The ~~majority of the~~ net other-than-temporary impairment losses recognized in ~~2011~~2014 and ~~2010~~2012 related to the Company’s non-agency mortgage-backed securities portfolio. ~~In 2009, the net other-than-temporary impairment losses pertained primarily to the Company’s equity securities portfolio and also to the non-agency mortgage-backed securities portfolios.~~

The title insurance and services segment (primarily direct operations) is labor intensive; accordingly, a major expense component is personnel costs. This expense component is affected by two ~~competing~~primary factors: the need to monitor personnel changes to match the level of corresponding or anticipated new orders and the need to provide quality service.

~~Title insurance~~Personnel costs decreased $24.3 million, or 1.8%, in 2014 from 2013 and increased $105.2 million, or 8.5%, in 2013 from 2012. Excluding the $37.0 million impact of new acquisitions for the year ended December 31, 2014, personnel costs decreased ~~2.3%~~$61.3 million, or 4.6%, in ~~2011 from 2010 and 1.2% in 2010 from 2009.~~2014 compared to 2013. The decrease in ~~2011 compared with 2010~~2014, adjusted for the impact of new acquisitions, was primarily attributable to ~~a reduction in domestic employees~~lower salary, payroll tax, employee benefit, overtime, and ~~decreased expenses related~~severance costs. The lower salary and payroll tax costs were attributable to reduced headcount when compared to the ~~Company’s~~prior year. The lower employee benefit ~~plans. These expense~~costs were due to changes in the Company’s medical and dental insurance plans, lower incurred medical claims and lower headcount when compared to the prior year. The lower overtime costs were due to lower order volumes and revenues when compared to the prior year. The lower severance costs were due to a lower level of employee reductions ~~were partially offset~~made during 2014 when compared to 2013. The increase in 2013 compared with 2012 was primarily attributable to higher staffing levels and incentive compensation driven by increased ~~commissions in~~revenues when compared to the ~~commercial division, which were the result of increased commercial revenues, and increased~~prior year. Personnel costs included severance expense ~~associated with a reduction in employees. Included in personnel costs~~of $8.9 million, $17.5 million and $5.5 million for ~~2010,~~2014, 2013 and ~~not for 2009, was $22.0 million of expense associated with certain offshore functions that prior to~~

the Separation were performed by TFAC and allocated to the Company. The allocations in prior years were included in the title insurance and services segment’s other operating expenses. Beginning in 2010, these offshore functions were part of the Company’s operations and the related personnel expenses were included in the title insurance and services segment’s personnel costs. Excluding the impact of these expenses, title insurance personnel costs decreased 3.2% in 2010 from 2009. This decrease was primarily due to domestic employee reductions, offset in part by increased expense in connection with the Company’s employee benefit plans.

2012, respectively.

The Company continues to closely monitor order volumes and related staffing levels and ~~will~~intends to adjust staffing levels as considered necessary. The Company’s direct title operations opened ~~1,254,100, 1,469,100~~1,155,500, 1,384,600 and ~~1,770,700~~1,634,900 domestic title orders in ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively, representing ~~a decrease~~decreases of ~~14.6%~~16.5% in ~~2011~~2014 from ~~2010~~2013 and ~~a decrease of 17.0%~~15.3% in ~~2010~~2013 from ~~2009.~~

2012.

A summary of premiums retained by agents and agent premiums is as follows:

   2011 2010 2009
   (in thousands, except percentages)
Premiums retained by agents
   $ 1,195,282    $ 1,222,274    $ 1,229,229


Agent premiums
   $ 1,491,943    $ 1,517,704    $ 1,524,120


% retained by agents
   80.1 % 80.5 % 80.7 %

	2014			2013			2012
	(in thousands, except percentages)
Premiums retained by agents	$	1,470,895		$	1,636,694		$	1,370,193
Agent premiums	$	1,841,618		$	2,044,862		$	1,709,905
% retained by agents		79.9	%		80.0	%		80.1	%

The premium split between underwriter and agents is in accordance with the respective agency contracts and can vary from region to region due to divergences in real estate closing practices ~~as well as rating structures.~~and state regulations. As a result, the percentage of title premiums retained by agents ~~varies~~can vary due to the geographical mix of revenues from agency operations. The percentage of title premiums retained by agents ~~decreased over the last three years due to the cancellation and/or modification of certain agency relationships with unfavorable splits~~for 2014, 2013 and ~~a more favorable geographic mix of agency revenues. In 2011, the agent retention percentage~~2012 was ~~also impacted by a large commercial deal that closed in the first quarter with a favorable agent split.~~essentially unchanged.

Other operating expenses (principally related to direct operations) decreased ~~5.6%~~$55.3 million, or 6.8%, in ~~2011~~2014 from ~~2010~~2013 and ~~13.5%~~increased $47.4 million, or 6.2%, in ~~2010~~2013 from ~~2009.~~2012. Excluding the $29.9 million impact of new acquisitions for the year ended December 31, 2014, other operating expenses decreased $85.1 million, or 10.4%, in 2014 compared to 2013. The decrease in ~~2011~~2014 from ~~2010~~2013, adjusted for the impact of new acquisitions, was primarily attributable to lower furniture and equipment related lease costs due to several lease buyouts that occurred during 2010, lower office related expenses resulting from the Company’s consolidation and/or closure of certain title offices, and a reduction in consulting expenses. These decreases were partially offset by an increase in production related expenses and temporary labor costs driven by lower order volumes. The increase in ~~the Company’s commercial, default and international businesses, and by higher legal expenses. The~~2013 from 2012 was primarily attributable to increased production related ~~costs in the Company’s commercial~~expenses and ~~international businesses were due to~~ higher transaction volumes, while the increase in the default business was due to product mix. Excluding the impact of the $22.0 million of allocations for certain offshore functions discussed in the personnel costs discussion above, the decrease in other operating expenses was 10.9% in 2010 from 2009. This decrease reflected lower occupancy costs as a result of the continued consolidation and/or closure of certain title officeslegal and ~~other cost-containment programs.~~software related costs.

The provision for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees, was ~~9.5%~~7.0%, ~~6.2%~~8.8% and ~~6.8%~~6.9% for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively.

attributable to several large commercial claims, net of anticipated recoveries, mainly from ~~higher than expected claims emergence experienced during 2010 for policies issued prior~~mechanics liens, and primarily related to ~~2009,~~policy years 2003, 2005 and ~~lower than expected claims emergence experienced during 2010 for~~2007. Other factors, including a large international commercial claim from policy year ~~2009. The rate of 6.8% in 2009 reflected an expected ultimate loss rate of 7.0% for policy year 2009, with a minor downward adjustment~~2004, also contributed to the net increase in the loss reserve estimates for ~~certain~~ prior policy years.

As of December 31, ~~2011,~~2014, the title insurance and services segment’s IBNR reserve was ~~$816.6~~$802.1 million, which reflected ~~the~~management’s best ~~estimate from the Company’s internal actuarial analysis.~~estimate. The Company’s internal actuary ~~also~~ determined a range of reasonable estimates of ~~$711.9~~$726.1 million to ~~$990.9~~$990.5 million. The range limits are ~~$104.7~~$76.0 million below and ~~$174.3~~$188.4 million above ~~the~~management’s best estimate, respectively, and represent an estimate of the range of variation among reasonable estimates of the IBNR reserve.

Actuarial estimates are sensitive to assumptions used in models, as well as the structures of the models themselves, and to changes in claims payment and incurral patterns, which can vary materially due to economic conditions, among other factors.

~~Adverse~~The prior year rate of 8.8% reflected an ultimate loss rate of 5.0% for policy year 2013 and a net increase in the loss reserve estimates for prior policy years of $148.5 million. The increase in loss reserve estimates for prior policy years reflected claims development ~~in 2011 included higher-than-expected claims emergence for commercial and~~above expected levels during 2013, primarily from domestic lenders policies, ~~particularly~~commercial policies and the Company’s guaranteed valuation product offered in Canada. The reserve strengthening associated with domestic lenders policies was $67.4 million and was primarily attributable to increased claims frequency for policy years 2004 through 2008. The increased claims frequency was primarily due to mortgage lenders and servicers processing a large volume of foreclosures during 2013. As foreclosure processing increases, lenders claims generally increase, because lenders claims typically come from foreclosures in which the lender suffers a loss. At December 31, 2013, the Company expected the high level of foreclosure processing to continue in the near term as mortgage lenders and servicers worked through their foreclosure inventory. The reserve strengthening associated with domestic lenders policies reflected these expectations. The reserve strengthening associated with commercial policies was $38.8 million and was primarily attributable to several large commercial claims, mainly from mechanics liens, and primarily related to policy years 2007 and 2008. The reserve strengthening associated with the guaranteed valuation product offered in Canada was $21.7 million and was primarily attributable to claims frequency exceeding the Company’s expectations during 2013. The increase in frequency primarily related to policy years 2007 and 2010.

The 2012 rate of 6.9% reflected an ultimate loss rate of 5.1% for policy year 2012 and a net increase in the loss reserve estimates for prior policy years of $62.1 million. The increase in loss reserve estimates for prior policy years reflected claims development above expected levels during 2012, primarily from domestic lenders policies and international business, including the guaranteed valuation product offered in Canada. The reserve strengthening associated with domestic lenders policies was $25.6 million and was primarily attributable to policy years 2005 through 2007. ~~Management believes that these~~This strengthening was primarily due to an increase in claims frequency experienced during 2012, partially offset by a slight decrease in severity. The reserve strengthening associated with the international business, excluding the guaranteed valuation product, was $15.6 million and was primarily related to increased severity experienced during 2012 for policy years ~~have higher ultimate loss ratios than historical averages,~~2003 through 2011. The reserve strengthening associated with the guaranteed valuation product was $11.8 million and ~~that they also have~~reflected an increase in claims frequency experienced ~~accelerated reporting~~during the first half of 2012. The increase in frequency primarily related to policy years 2008 and payment of claims, particularly on lenders policies. Reasons for higher loss levels and acceleration of claims reporting and payment include adverse underwriting conditions in real estate markets during 2005 through 2007, declines in real estate prices, increased levels of foreclosures and increased mechanics lien exposure due to failures of development projects.

2009.

The current economic environment continues to show ~~more~~ potential for volatility ~~than usual~~ over the short term, ~~particularly in regard to real estate prices and mortgage defaults,~~ which may affect title claims. Relevant contributing factors include ~~high~~continuing elevated foreclosure ~~volume, tight credit markets,~~inventory and foreclosure processing and general economic ~~instability and government actions that may mitigate or exacerbate recent trends.~~uncertainty. Other factors, including factors not yet identified, may also influence claims development. ~~At this point, economic~~While real estate and ~~certain~~financial market conditions ~~appear~~have improved to ~~be stabilizing~~some extent as evidenced by increased real estate prices and ~~improving~~a decline in ~~some respects, yet~~mortgage defaults, significant uncertainty remains. ~~This~~In addition, while foreclosure inventory and foreclosure processing remain elevated compared to historic norms, the level of inventory and processing has declined from its peak.

Nevertheless, the current environment ~~results in~~continues to create an increased potential for actual claims experience to vary significantly from projections, in either direction, which would directly affect the claims provision. If actual claims vary significantly from expected, reserves may be adjusted to reflect updated estimates of future claims.

The volume and timing of title insurance claims are subject to cyclical influences from real estate and mortgage markets. Title policies issued to lenders constitute a large portion of the Company’s title insurance volume. These policies insure lenders against losses on mortgage loans due to title defects in the collateral property. Even if an underlying title defect exists that could result in a claim, often the lender must realize an actual loss, or at least be likely to realize an actual loss, for title insurance liability to exist. As a result, title insurance claims exposure is sensitive to lenders’ losses on mortgage loans, and is affected in turn by external factors that affect mortgage loan ~~losses.~~

losses, particularly macroeconomic factors.

A general decline in real estate prices can expose lenders to greater risk of losses on mortgage loans, as loan-to-value ratios increase and defaults and foreclosures increase. ~~The current environment may continue to have increased potential for claims on lenders’ title policies, particularly if defaults and foreclosures are at elevated levels.~~ Title insurance claims exposure for a given policy year is also affected by the quality of mortgage loan underwriting during the corresponding origination year. The Company believes that sensitivity of claims to external conditions in real estate and mortgage markets is an inherent feature of title insurance’s business economics that applies broadly to the title insurance industry. Lenders have experienced high losses on mortgage loans from prior years, including loans that were originated during the years 2005 through ~~2007.~~2008. These losses have led to higher title insurance claims on lenders policies, and also have accelerated the reporting of claims that would have been realized later under more normal conditions.

Loss ratios (projected to ultimate value) for policy years 2005 through 2008 are higher than loss ratios for policy years 1992 through 2004. The major causes of the higher loss ratios for those four policy years are believed to be confined mostly to that underwriting period. These causes included: rapidly increasing residential real estate prices which led to an increase in the incidences of fraud, lower mortgage loan underwriting standards and a higher concentration than usual of subprime mortgage loan originations.

The projected ultimate loss ratios, as of December 31, ~~2011,~~2014, for policy years ~~2011, 2010~~2014, 2013 and ~~2009~~2012 were ~~5.6%~~5.3%, ~~4.7%~~4.6% and ~~5.2%~~3.8%, respectively, which are lower than the ratios for 2005 through 2008. These projections were based in part on an assumption that more favorable underwriting conditions existed in 2009 through ~~2011~~2014 than in 2005 through 2008, including, but not limited to, tighter loan underwriting ~~standards and lower housing prices.~~standards. Current claims data from policy years 2009 through ~~2011,~~2014, while still at an early stage of development for the more recent policy years within that period, supports this assumption.

Depreciation and amortization expense increased $10.9 million, or 16.2%, in 2014 from 2013 and decreased $0.7 million, or 1.0%, in 2013 from 2012. The increase in 2014 was primarily attributable to the depreciation and amortization expense associated with developed technology and other intangible assets recorded in connection with new acquisitions completed during the first quarter of 2014. Excluding the $8.6 million impact of new acquisitions for the year ended December 31, 2014, depreciation and amortization expense increased $2.3 million, or 3.4%, in 2014 compared to 2013.

Insurers generally are not subject to state income or franchise taxes. However, in lieu thereof, a ~~“premium”~~premium tax is imposed on certain operating revenues, as defined by statute. Tax rates and bases vary from state to state; accordingly, the total premium tax burden is dependent upon the geographical mix of operating revenues. The Company’s noninsurance subsidiaries are subject to state income tax and do not pay premium tax. Accordingly, the Company’s total tax burden at the state level for the title insurance and services segment is composed of a combination of premium taxes and state income taxes. Premium taxes as a percentage of title insurance premiums and escrow fees were 1.4%, ~~1.2%~~1.3% and ~~1.1%~~1.3% for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively.

In general, the title insurance business is a lower profit margin business when compared to the Company’s specialty insurance segment. The lower profit margins reflect the high cost of performing the essential services required before insuring title, whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to this relatively high proportion of fixed costs, title insurance profit margins generally improve as closed order volumes increase. Title insurance profit margins are affected by the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity. In addition, profit margins from refinance transactions vary depending on whether they are centrally processed or locally processed. Profit margins from resale, new construction and centrally processed refinance transactions are generally higher than from locally processed refinance transactions because in many states there are premium discounts on, and cancellation rates are higher for, refinance transactions. Title insurance profit margins are also affected by the percentage of title insurance premiums generated by agency operations. Profit margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. The pre-tax ~~margin was 4.5%~~margins were 8.7%, ~~6.4%~~7.6% and ~~5.7%~~11.3% for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively.

Specialty Insurance


	2011			2010			2009			2011 vs. 2010						2010 vs. 2009						2014			2013			2012			2014 vs. 2013						2013 vs. 2012
										$ Change			% Change			$ Change			% Change												$ Change			% Change			$ Change			% Change
	(in thousands, except percentages)																					(in thousands, except percentages)
Revenues
Direct premiums	$	273,665		$	272,863		$	270,475		$	802			0.3		$	2,388			0.9		$	353,812		$	329,194		$	296,053		$	24,618			7.5		$	33,141			11.2
Information and other		1,531			—			—			1,531			—			—			—			2,260			1,652			1,605			608			36.8			47			2.9
Investment income		10,380			11,876			13,429			(1,496	)		(12.6	)		(1,553	)		(11.6	)
Net investment income																							7,288			7,342			8,923			(54	)		(0.7	)		(1,581	)		(17.7	)
Net realized investment gains		1,406			1,938			1,292			(532	)		(27.5	)		646			50.0			5,306			1,425			8,590			3,881			272.4			(7,165	)		(83.4	)
Net other-than-temporary impairment losses recognized in earnings		—			(111	)		(6,820	)		111			100.0			6,709			98.4

		286,982			286,566			278,376			416			0.1			8,190			2.9
																							368,666			339,613			315,171			29,053			8.6			24,442			7.8
Expenses
Personnel costs		51,389			51,939			55,396			(550	)		(1.1	)		(3,457	)		(6.2	)		62,118			58,261			55,453			3,857			6.6			2,808			5.1
Other operating expenses		38,106			42,385			41,975			(4,279	)		(10.1	)		410			1.0			45,599			41,725			42,395			3,874			9.3			(670	)		(1.6	)
Provision for policy losses and other claims		149,439			140,053			140,895			9,386			6.7			(842	)		(0.6	)		196,901			186,895			160,290			10,006			5.4			26,605			16.6
Depreciation and amortization		4,197			5,341			4,295			(1,144	)		(21.4	)		1,046			24.4			4,978			4,865			4,553			113			2.3			312			6.9
Premium taxes		4,691			4,135			4,346			556			13.4			(211	)		(4.9	)		6,096			5,735			5,021			361			6.3			714			14.2
Interest		17			18			25			(1	)		(5.6	)		(7	)		(28.0	)

		247,839			243,871			246,932			3,968			1.6			(3,061	)		(1.2	)
																							315,692			297,481			267,712			18,211			6.1			29,769			11.1
Income before income taxes	$	39,143		$	42,695		$	31,444		$	(3,552	)		(8.3	)	$	11,251			35.8		$	52,974		$	42,132		$	47,459		$	10,842			25.7		$	(5,327	)		(11.2	)

Margins		13.6	%		14.9	%		11.3	%		(1.3	)%		(8.7	)		3.6	%		31.9			14.4	%		12.4	%		15.1	%		2.0	%		16.1			(2.7	)%		(17.9	)

~~Specialty insurance direct~~Direct premiums increased ~~0.3%~~7.5% in ~~2011 over 2010~~2014 from 2013 and ~~0.9%~~11.2% in ~~2010 over 2009.~~2013 from 2012. The increases ~~in 2011 and 2010~~ were ~~due to increases~~driven by higher premiums earned in ~~volume from~~ the home warranty ~~division partially offset by declines in volume~~business and, to a lesser extent, higher premiums earned in the property and casualty ~~division.~~business. The ~~first-time homebuyer credit, which expired in April of 2010, contributed to the~~ increase in the home warranty ~~division volume~~business was primarily in ~~2010 over 2009.~~

~~Investment income decreased 12.6%~~its renewal and real estate channels and was driven by an increase in ~~2011 from 2010~~the price charged for home warranty residential service contracts and ~~11.6%~~an increase in ~~2010 from 2009. These decreases~~the number of contracts issued. The increase in the property and casualty business was primarily ~~reflected a decrease~~ in ~~interest income earned from the investment portfolio reflecting a decline in yields.~~

its independent broker and direct channels.

Net realized investment gains ~~and net other-than-temporary impairment losses~~ for the specialty insurance segment totaled ~~gains of~~$5.3 million, $1.4 million ~~in 2011~~ and ~~$1.8~~$8.6 million ~~in 2010, compared with losses of $5.5 million in 2009. The 2011~~for 2014, 2013 and ~~2010 gains~~2012, respectively, and were primarily ~~driven by~~from the ~~sale~~sales of debt and equity securities. ~~The 2009 losses were primarily driven by other-than-temporary impairment losses taken on certain equity and debt securities partially offset by gains realized on the sale of equity securities.~~

~~Specialty insurance personnel~~Personnel costs and other operating expenses ~~decreased 5.1%~~increased 7.7% in ~~2011~~2014 from ~~2010~~2013 and ~~3.1%~~2.2% in ~~2010~~2013 from ~~2009.~~2012. The ~~decrease~~increase in ~~2011~~2014 from ~~2010~~2013 was primarily ~~due~~related to ~~reduced marketing costs~~higher salary expense associated with higher average employee headcount during the current year related to increased volume in the home warranty ~~division.~~business, higher incentive compensation related to higher revenue and profitability, higher production related expenses due to increased volumes, and increased amortization of deferred acquisition costs. The ~~decrease~~increase in ~~2010~~2013 from ~~2009~~2012 was primarily ~~due~~related to increased salary expense associated with higher employee ~~reductions as well as other cost-containment programs.~~

headcount and higher commissions paid to agents and brokers associated with increased volume in the home warranty and property and casualty businesses, partially offset by an increase in deferred acquisition costs.

The provision for home warranty claims, expressed as a percentage of home warranty premiums, was ~~56.1%~~53.3% in ~~2011, 50.6%~~2014, 57.5% in ~~2010~~2013 and ~~53.9%~~55.8% in ~~2009.~~2012. The decrease in rate in 2014 from 2013 was primarily attributable to lower severity and lower frequency of claims due to milder weather conditions during the second and third quarters of 2014 when compared to the respective quarters of 2013. The rate in 2014 also benefited from an improvement in claims management in 2014 when compared to 2013. The increase in rate in ~~2011 over 2010~~2013 from 2012 was primarily ~~due~~attributable to higher weather related claims in the summer season as compared to the previous year, which resulted in an

increase in ~~business coming from~~more costly air conditioning claims when compared to 2012. In addition, the direct to consumer channel in 2011, which typically has a higher loss ratio than the traditional real estate channel. The decrease in rate in 2010 from 2009 was primarily due to a reduction in the average costfrequency and severity of other types of claims ~~and,~~increased in 2013 when compared to ~~a lesser extent, fewer incidents.~~

2012.

The provision for property and casualty claims, expressed as a percentage of property and casualty insurance premiums, was ~~52.0%~~60.1% in ~~2011, 53.0%~~2014, 55.4% in ~~2010~~2013 and ~~49.8%~~51.1% in ~~2009.~~2012. The ~~decrease~~increase in rate in ~~2011~~2014 from ~~2010~~2013 was primarily attributable to higher claims severity and frequency. 2014 was impacted by the severe winter weather experienced in the first quarter and the California wildfires that occurred during the second quarter. The increase in rate in 2013 from 2012 was due to ~~a reduction~~an increase in seasonal fire and storm claim events ~~partially offset by~~and an increase in the frequency and severity of routine or non-event core losses. The increase in rate in 2010 over 2009 was primarily due to seasonal winter storms in the first and fourth quarters of 2010, including an unusual hailstorm over Arizona in October 2010, partially offset by lower routine or non-event core losses.

Premium taxes as a percentage of specialty insurance segment premiums were 1.7% in ~~2011, 1.5% in 2010~~2014, 2013 and ~~1.6% in 2009.~~

2012.

A large part of the revenues for the specialty insurance businesses are generated by renewals and are not dependent on the level of real estate ~~activity.~~activity in the year of renewal. With the exception of loss expense, the majority of the expenses for this segment are variable in nature and therefore generally fluctuate consistent with revenue fluctuations. Accordingly, profit

margins for this segment (before loss expense) are relatively constant, although as a result of some fixed expenses, profit margins (before loss expense) should nominally improve as premium revenues increase. Pre-tax margins were ~~13.6%~~14.4%, ~~14.9%~~12.4% and ~~11.3%~~15.1% for ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively.

Corporate


	2011			2010			2009			2011 vs. 2010						2010 vs. 2009						2014			2013			2012			2014 vs. 2013						2013 vs. 2012
										$ Change			% Change			$ Change			% Change												$ Change			% Change			$ Change			% Change
	(in thousands, except percentages)																					(in thousands, except percentages)
Revenues
Investment income	$	2,151		$	8,675		$	2,267		$	(6,524	)		(75.2	)	$	6,408			282.7
Net realized investment losses		(3,811	)		(423	)		(1,164	)		(3,388	)		NM	¹		741			63.7

		(1,660	)		8,252			1,103			(9,912	)		(120.1	)		7,149			648.1
Net investment income																						$	5,504		$	8,556		$	4,120		$	(3,052	)		(35.7	)	$	4,436			107.7
Net realized investment gains																							911			4,452			25,772			(3,541	)		(79.5	)		(21,320	)		(82.7	)
																							6,415			13,008			29,892			(6,593	)		(50.7	)		(16,884	)		(56.5	)
Expenses
Personnel costs		30,249			31,437			15,810			(1,188	)		(3.8	)		15,627			98.8			34,545			48,960			46,210			(14,415	)		(29.4	)		2,750			6.0
Other operating expenses		22,102			26,302			18,171			(4,200	)		(16.0	)		8,131			44.7			26,528			27,264			24,462			(736	)		(2.7	)		2,802			11.5
Depreciation and amortization		3,463			2,735			3,879			728			26.6			(1,144	)		(29.5	)		2,799			3,095			2,787			(296	)		(9.6	)		308			11.1
Interest		10,403			7,889			5,458			2,514			31.9			2,431			44.5			17,981			15,278			9,782			2,703			17.7			5,496			56.2
																							81,853			94,597			83,241			(12,744	)		(13.5	)		11,356			13.6
		66,217			68,363			43,318			(2,146	)		(3.1	)		25,045			57.8

Loss before income taxes	$	(67,877	)	$	(60,111	)	$	(42,215	)	$	(7,766	)		(12.9	)	$	(17,896	)		(42.4	)	$	(75,438	)	$	(81,589	)	$	(53,349	)	$	6,151			7.5		$	(28,240	)		(52.9	)

~~(1)~~

~~Not meaningful~~

~~Investment~~Net investment income totaled ~~$2.2~~$5.5 million, ~~$8.7~~$8.6 million and ~~$2.3~~$4.1 million in ~~2011, 2010~~2014, 2013, and ~~2009,~~2012, respectively. The ~~variance~~change in net investment income for all three years is primarily attributable to fluctuations in ~~the~~ earnings on investments associated with the Company’s deferred compensation plan.

Net investment income for 2013 and 2012 included impairment losses recognized on investments accounted for using the equity method of $2.0 million and $1.2 million, respectively.

Net realized investment ~~losses~~gains totaled ~~$3.8 million, $0.4~~$0.9 million and ~~$1.2~~$4.5 million in ~~2011, 2010~~2014 and ~~2009, respectively. The loss in 2011 was~~2013, respectively, and were primarily ~~related~~attributable to ~~the impairment of a non-marketable investment and~~ the sale of ~~a corporate fixed asset.~~non-marketable investments. Net realized investment gains totaled $25.8 million in 2012 and were attributable to the sale of CoreLogic stock during the third quarter of 2012.

Corporate personnel costs and other operating expenses were ~~$52.4~~$61.1 million, ~~$57.7~~$76.2 million and ~~$34.0~~$70.7 million in ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively. The ~~Company experienced a higher level of corporate personnel~~decrease for 2014 was primarily attributable to decreased costs associated with the Company’s defined benefit pension, supplemental benefit and ~~other operating expenses following the Separation when compared~~deferred compensation plans. The increase for 2013 was attributable to the amounts allocated from TFAC prior to the Separation. Following the Separation, the Company is a separate publicly traded company, which resulted in a higher level of corporate costs in 2011 and 2010 when compared to 2009. Additionally, personnelincreased costs associated with the Company’s deferred compensation plan ~~were higher~~and, to a lesser extent, increased expenses allocated to the corporate division. The Company expects to incur additional expenses of approximately $9 million in ~~2010~~2015 related to its defined benefit pension and supplemental benefit plans when compared to ~~2011 and 2009.~~2014. The expected increase in ~~costs~~2015 is primarily the result of a significant decline in 2010 associated with the Company’s deferred compensation plan was offset by the increase in income earned in 2010 on investments associated with the deferred compensation plan, as discussed above. Also, other operating expenses were higher in 2010interest rates at December 31, 2014 when compared to ~~2011~~December 31, 2013, and ~~2009 due~~ to ~~professional services expenses incurred during 2010 related~~a lesser extent, the Company’s adoption of the updated mortality tables published by the Society of Actuaries in October 2014 which reflect substantial improvements to ~~the Separation.~~

life expectancy.

Interest expense increased ~~$2.5~~$2.7 million in ~~2011 over 2010~~2014 from 2013 and ~~increased $2.4~~$5.5 million in ~~2010 over 2009.~~2013 from 2012. Interest expense ~~prior~~increased in 2014 from 2013 primarily due to the ~~Separation related~~Company’s issuance of $300.0 million of debt in November 2014. Interest expense increased in 2013 from 2012 primarily due to ~~draws made in 2008 used for the operations of~~ the Company’s ~~businesses~~issuance of $250.0 million of debt in ~~the amount~~January 2013. The Company expects to incur additional interest expense of ~~$140.0~~approximately $10 million ~~under TFAC’s credit agreement that was allocated~~in 2015 when compared to 2014 due to the ~~Company. In connection with the Separation,~~Company’s issuance of debt in November 2014. This expected increase assumes the Company ~~borrowed $200.0 million~~will not borrow under its credit facility ~~and paid off the allocated portion of TFAC’s debt.~~in 2015. Interest expense increased in 2011 over 2010 and in 2010 over 2009 because the Company’s credit facility bears interest at a higher rate than the allocated portion of TFAC’s debt. Additionally, $4.2 million of interest expense related to intercompany notes payable to the title insurance and services and specialty insurance segments was ~~included~~$1.5 million, $2.6 million and $3.2 million for ~~2011 compared to $2.7 million of interest expense for 2010~~the years ended December 31, 2014, 2013 and ~~none for 2009.~~2012, respectively.

Eliminations

Eliminations primarily represent interest income and related interest expense associated with intercompany notes between the Company’s segments, which are eliminated in the consolidated financial statements. The Company’s inter-segment eliminations were not material for the years ended December 31, ~~2011~~2014, 2013 and ~~2010. The Company did not record inter-segment eliminations for the year ended December 31, 2009, as there was no inter-segment income or expense.~~2012.

Income Taxes

Income taxes differ from the amounts computed by applying the federal income tax rate of 35.0%. A reconciliation of this difference is as follows:

   Year ended December 31,
   2011 2010 2009
   (in thousands)
Taxes calculated at federal rate
   $ 45,603    $ 74,237    $ 71,521
State taxes, net of federal benefit
   2,499    3,340    (612 )
Dividends received deduction
   (140 ) (250 ) (1,381 )
Change in liability for tax positions
   2,548    4,626    (8,776 )
Exclusion of certain meals and entertainment expenses
   2,245    2,889    2,675
Change in capital loss valuation allowance
   —      (14,683 ) —
Foreign taxes in excess of federal rate
   1,740    9,802    10,365
Other items, net
   (2,781 ) 3,189    (3,724 )


   $ 51,714    $ 83,150    $ 70,068

	Year ended December 31,
		2014					2013					2012
	(in thousands, except percentages)
Taxes calculated at federal rate	$	122,696		35.0	%	$	108,748		35.0	%	$	163,592		35.0	%
State taxes, net of federal benefit		2,891		0.8			11,480		3.7			9,525		2.0
Change in liability for tax positions		412		0.1			3,537		1.1			2,033		0.4
Change in capital loss valuation allowance		—		—			—		—			(5,276	)	(1.1	)
Foreign income taxed at different rates		(6,091	)	(1.7	)		8,567		2.8			2,881		0.6
Foreign tax credits		(2,184	)	(0.6	)		(5,640	)	(1.8	)		(2,921	)	(0.6	)
Other items, net		(1,379	)	(0.4	)		(3,048	)	(1.0	)		(4,156	)	(0.9	)
	$	116,345		33.2	%	$	123,644		39.8	%	$	165,678		35.4	%

The Company’s effective income tax rate (income tax expense as a percentage of income before income taxes), was ~~39.7%~~33.2% for ~~2011, 39.2%~~2014, 39.8% for ~~2010~~2013 and ~~34.3%~~35.4% for ~~2009.~~2012. The ~~absolute~~ differences in the effective tax rates were primarily due to ~~changes in the ratio of permanent differences to income before income taxes, reserve adjustments recorded in 2009 for which corresponding tax benefits were recognized, as well as~~ changes in state and foreign income taxes resulting from fluctuations in the Company’s noninsurance and foreign subsidiaries’

contribution to pretax profits, changes in the ratio of permanent differences to income before income taxes and changes in the liability related to tax positions reported on the Company’s tax returns. ~~In addition, the~~The effective tax rate for ~~2010 reflects~~2012 included the release of a valuation allowance recorded against capital losses.

Net Income and Net Income Attributable to the Company

Net income and per share information are summarized as follows:


	2011		2010		2009		2014		2013		2012
	(in thousands, except per share amounts)						(in thousands, except per share amounts)
Net income	$	78,579	$	128,956	$	134,277	$	234,215	$	187,064	$	301,728
Less: Net income attributable to noncontrolling interests		303		1,127		11,888		681		697		687

Net income attributable to the Company	$	78,276	$	127,829	$	122,389	$	233,534	$	186,367	$	301,041

Per share of common stock:
Net income attributable to the Company:
Net income per share attributable to the Company’s stockholders:
Basic	$	0.74	$	1.23	$	1.18	$	2.18	$	1.74	$	2.83

Diluted	$	0.73	$	1.20	$	1.18	$	2.15	$	1.71	$	2.77

Weighted-average shares:
Weighted-average common shares outstanding:
Basic		105,197		104,134		104,006		106,884		106,991		106,307

Diluted		106,914		106,177		104,006		108,688		109,102		108,542

Net income attributable to noncontrolling interests decreased $0.8 million, or 73.1%, in 2011 from 2010 and $10.8 million, or 90.5%, in 2010 from 2009. The decrease in net income attributable to noncontrolling interests in 2010 when compared to 2009 is due to the Company’s purchases of subsidiary shares from noncontrolling interests in 2009. The purchases of subsidiary shares did not significantly impact net income attributable to noncontrolling interests in 2009, because the majority of the Company’s purchases occurred late in the fourth quarter of 2009.

Per share information for prior years was computed using the number of shares of common stock outstanding immediately following the Separation, as if such shares were outstanding for the entire period prior to the Separation. See Note 13 Earnings Per Share to the consolidated financial statements for further discussion of earnings per share.

Liquidity and Capital Resources

Cash ~~Requirements.~~ requirements. The Company generates cash primarily from the sale of its products and services and investment income. The Company’s current cash requirements include operating expenses, taxes, payments of principal and interest on its debt, capital expenditures, potential business acquisitions and dividends on its common stock. Management forecasts the cash needs of the holding company and its primary subsidiaries and regularly reviews their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Due to the Company’s ability to generate cash flows from operations and its liquid-asset position, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and obligations for at least the next twelve months.

The substantial majority of the Company’s business is dependent upon activity in the real estate and mortgage markets, which are cyclical and seasonal. Periods of increasing interest rates and reduced mortgage financing availability generally have an adverse effect on residential real estate activity and therefore typically decrease the Company’s revenues. In contrast, periods of declining interest rates and increased mortgage financing availability generally have a positive effect on residential

real estate activity which typically increases

the Company’s revenues. Residential purchase activity is typically slower in the winter months with increased volumes in the spring and summer months. Residential refinance activity is typically more volatile than purchase activity and is highly impacted by changes in interest rates. Commercial real estate volumes are less sensitive to changes in interest rates, but fluctuate based on local supply and demand conditions for space and mortgage financing availability.

Cash provided by operating activities amounted to ~~$133.8~~$360.6 million, ~~$155.5~~$378.5 million and ~~$233.6~~$429.7 million for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively, after claim payments, net of recoveries, of ~~$503.4~~$469.8 million, ~~$456.2~~$479.3 million and ~~$452.2~~$446.0 million, respectively. The principal nonoperating uses of cash and cash equivalents for the year ended December 31, ~~2011~~2014 were purchases of debt and equity securities, ~~decreases in demand deposits at the Company’s banking operations,~~ repayment of debt, business acquisitions, capital expenditures and dividends ~~paid~~ to common stockholders. The most significant nonoperating sources of cash and cash equivalents for the year ended December 31, 2011 were proceeds from the sales and maturities of debt and equity securities, early payoff of the note receivable from CoreLogic, payments collected related to loans receivable and proceeds from the issuance of new debt. The principal nonoperating uses of cash and cash equivalents for the year ended December 31, ~~2010~~2013 were ~~the~~purchases of debt and equity securities, repayment of debt, ~~(to TFAC~~capital expenditures, purchase of Company shares and ~~third parties),~~payment of dividends to common stockholders. The principal nonoperating uses of cash ~~distribution to TFAC in connection with~~and cash equivalents for the ~~Separation, additions to the investment portfolio,~~year ended December 31, 2012 were purchases of debt and equity securities, repayment of debt, capital expenditures and payment of dividends to common stockholders. The most significant nonoperating sources of cash and cash equivalents for the ~~year~~years ended December 31, ~~2010~~2014, 2013 and 2012 were proceeds from the sales and maturities of debt and equity securities, increases in the deposit balances at the Company’s banking operations, proceeds from the ~~Company’s new revolving credit facility and proceeds from the sales and maturities~~issuance of debt and ~~equity securities.~~paydowns and net proceeds related to the sale of loans receivable. The net effect of all activities on total cash and cash equivalents ~~was a decrease~~were increases of ~~$310.4~~$355.2 million, $164.3 million and $225.8 million for ~~2011, an increase of $97.4 million for 2010,~~the years ended December 31, 2014, 2013 and ~~a decrease of $92.4 million for 2009.~~

2012, respectively.

The Company continually assesses its capital allocation strategy, including decisions relating to dividends, ~~share~~stock repurchases, capital expenditures, acquisitions and investments. In March 2014, the Company’s board of directors approved an increase in the Company’s second quarter cash dividend to 24 cents per common share, representing a 100% increase from the prior level of 12 cents per common share. In January 2015, the Company’s board of directors approved a first quarter cash dividend of 25 cents per common share. Management expects that the Company will continue to pay quarterly cash dividends at or above the current level. The timing, declaration and payment of future dividends, however, falls within the discretion of the Company’s board of directors and will depend upon many factors, including the Company’s financial condition and earnings, the capital requirements of the Company’s businesses, industry practice, restrictions imposed by applicable law and any other factors the board of directors deems relevant from time to time.

In March ~~2011,~~2014, the Company’s board of directors approved aan increase in the size of the Company’s stock repurchase plan ~~which authorizes the repurchase of up to~~from $150.0 million to $250.0 million, of ~~the Company’s common stock.~~which $182.9 million remained as of December 31, 2014. Purchases may be made from time to time by the Company in the open market at prevailing market prices or in privately negotiated transactions. AsThe Company did not repurchase any shares of its common stock during the year ended December 31, 2014 and as of December 31, ~~2011, the Company~~2014, had repurchased and retired ~~203,900~~3.2 million shares of its common stock under the current authorization for a total purchase price of ~~$2.5~~$67.1 million.

The Company completed acquisitions in 2014 for an aggregate purchase price of $162.5 million, which were partially funded through borrowings under the Company’s credit facility.

Holding ~~Company.~~ company. First American Financial Corporation is a holding company that conducts all of its operations through its subsidiaries. The holding company’s current cash requirements include payments of principal and interest on its debt, taxes, payments in connection with employee benefit plans, dividends on its common stock and other expenses. The holding company is dependent upon dividends and other payments from its operating subsidiaries to meet its cash requirements. The Company’s target is to maintain a cash balance at the holding company equal to at least twelve months of estimated cash requirements. At certain points in time, the actual cash balance at the holding company may vary from this target due to, among other potential factors, the timing and amount of cash payments made and dividend payments received. Pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available to the holding company is limited, principally for the protection of policyholders. ~~Under~~As of December 31, 2014, under such regulations, the maximum amount of dividends, loans and advances available to the holding company from its insurance subsidiaries in ~~2012 is $181.1~~2015, without prior approval from applicable regulators, was $570.0 million. Such restrictions have not had, nor are they expected to have, an impact on the holding company’s ability to meet its cash obligations.

The Company’s principal title insurance subsidiary, First American Title Insurance Company (“FATICO”), which was previously domiciled in the state of California, redomesticated to Nebraska effective July 1, 2014. While the redomestication did impact FATICO’s total statutory capital and surplus, statutory net income and the maximum amount of dividends

FATICO can pay to the holding company due to differences in prescribed accounting practices and other regulations between the two states, the impact of the redomestication was not material to the liquidity or capital resources of the holding company.

In 2014, the Company substantially completed a multi-year initiative to restructure its legal entity organizational structure in order to increase the amount of dividends available to the holding company from its operating subsidiaries. As a result of this restructuring, a number of subsidiaries previously owned by FATICO are now owned either directly by the holding company or otherwise outside of any regulated insurance company.

As of December 31, ~~2011,~~2014, the holding company’s sources of liquidity ~~include $147.3~~included $328.9 million of cash ~~6.0 million shares of CoreLogic common stock with an estimated fair value of $77.5 million~~ and ~~$200.0~~cash equivalents and $700.0 million available on the Company’s ~~$400.0 million~~ revolving credit ~~facility described below.~~facility. Management believes that ~~its~~ liquidity at the holding company is sufficient to satisfy ~~its~~ anticipated cash requirements and obligations for at least the next twelve months.

Financing. ~~Financing.~~ ~~On April 12, 2010,~~ In May 2014, the Company ~~entered into a~~amended and restated its credit agreement with JPMorgan Chase Bank, N.A. ~~(“JPMorgan”)~~ in its capacity as administrative agent and ~~a syndicate of lenders.~~

the lenders party thereto. The credit agreement is comprised of a ~~$400.0~~$700.0 million revolving credit facility. ~~The~~Unless terminated earlier, the revolving loan commitments under the credit agreement will terminate on ~~the third anniversary~~May 14, 2019. The obligations of the ~~date of closing, or June 1, 2013. On June 1, 2010, the~~ Company ~~borrowed $200.0 million~~ under the ~~facility and transferred such funds to CoreLogic, as previously contemplated~~credit agreement are neither secured nor guaranteed. The agreement replaced the Company’s $600.0 million senior unsecured credit agreement that had been in ~~connection with~~place since November 14, 2012. Proceeds under the ~~Separation. Proceeds~~credit agreement may ~~also~~ be used for general corporate purposes. At December 31, ~~2011,~~2014, the ~~interest rate associated with the $200.0 million borrowed~~Company had no outstanding borrowings under the ~~facility is 3.06%.~~

facility.

The ~~Company’s obligations under the~~ credit agreement ~~are guaranteed by certain of the Company’s subsidiaries (the “Guarantors”). To secure the obligations of~~includes an expansion option that permits the Company, and the Guarantors (collectively, the “Loan Parties”) under the credit agreement, the Loan Parties pledged all of the equity interests they own in each Data Trace and Data Tree company and a 9% equity interest in FATICO.

If at any time the rating by Moody’s Investor Service, Inc. (“Moody’s”) or Standard & Poor’s Ratings Group (“S&P”) of the senior, unsecured, long-term indebtedness for borrowed money of the Company that is not guaranteed by any other person or subject to any other credit enhancement is rated lower than Baa3 or BBB-, respectively, or is not rated by either such rating agency, then the loan commitments are subject to mandatory reduction from (a) 50% of the net proceedssatisfaction of certain ~~equity issuances by any Loan Party, (b) 50% of~~conditions, to increase the ~~net proceeds of certain debt incurred~~ revolving commitments and/or ~~issued by any Loan Party, (c) 25% of~~add term loan tranches (“Incremental Term Loans”) in an aggregate amount not to exceed $150.0 million. Incremental Term Loans, if made, may not mature prior to the net proceeds received by any Loan Party from the disposition of CoreLogic stock received in connection with the Separation and (d) the net proceeds received by any Loan Party from certain dispositions of assets,revolving commitment termination date, provided that ~~the commitment reductions described above are only required~~amortization may occur prior to the extent necessary to reduce the total loan commitments to $200.0 million. The Company is only required to prepay loans to the extent that, after giving effect to any mandatory commitment reduction, the aggregate principal amount of all outstanding loans exceeds the remaining total loan commitments.

such date.

At the Company’s election, borrowings of revolving loans under the credit agreement bear interest at (a) the Alternate Base Rate plus the ~~Applicable Rate~~applicable spread or (b) the Adjusted LIBOR rate plus the ~~Applicable Rate~~applicable spread (in each case as defined in the agreement). The Company may select interest periods of one, two, three or six months or (if agreed to by all lenders) such other number of months for Eurodollar borrowings of loans. The ~~Applicable Rate~~applicable spread varies depending upon the debt rating assigned by Moody’s Investor Service (“Moody’s”), Inc. and/or Standard & Poor’s Rating Services (“S~~&P to the credit agreement, or if no such rating is in effect, the Index Debt Rating.~~&P”). The minimum ~~Applicable Rate~~applicable spread for Alternate Base Rate borrowings is ~~1.50%~~0.625% and the maximum is ~~2.25%~~1.00%. The minimum ~~Applicable Rate~~applicable spread for Adjusted LIBOR rate borrowings is ~~2.50%~~1.625% and the maximum is ~~3.25%~~2.00%.

The rate of interest on Incremental Term Loans will be established at or about the time such loans are made and may differ from the rate of interest on revolving loans.

The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the lenders may accelerate the ~~loans and the Collateral Agent may exercise remedies under the collateral documents.~~loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans will automatically accelerate. AtAs of December 31, ~~2011,~~2014, the Company iswas in compliance with the ~~debt~~financial covenants under the credit agreement.

In addition to amounts available under ~~the~~its credit facility, certain subsidiaries of the Company are parties to master repurchase agreements which are used as part of the Company’s liquidity management activities and to

support its risk management activities. In particular, securities loaned or sold under repurchase agreements ~~are~~may be used as short-term funding sources. ~~In 2011,~~During 2014, the Company ~~did not transfer or receive~~financed securities for funds ~~or securities~~received totaling $35.6 million under these agreements. As of December 31, 2014, no amounts remained outstanding under these agreements.

On November 10, 2014, the Company issued $300.0 million of 4.60% 10-year senior unsecured notes due in 2024. The notes were priced at 99.975% to yield 4.603%. Interest is due semi-annually on May 15 and November 15, beginning May 15, 2015. The Company intends to use the net proceeds for general corporate purposes. In anticipation of the receipt of the net proceeds from this offering, the Company repaid all borrowings outstanding under its credit facility, increasing the available capacity thereunder to the full $700.0 million size of the facility.

Notes and contracts payable as a percentage of total capitalization was ~~12.8%~~18.6% and 11.2% at December 31, ~~2011~~2014 and ~~2010.~~2013, respectively. The increase in 2014 primarily reflected the Company’s issuance of the senior unsecured notes during the fourth quarter of 2014. Notes and contracts payable are ~~more fully~~further described in Note 10 Notes and Contracts Payable to the consolidated financial statements.

Investment ~~Portfolio.~~ portfolio. The ~~Company’s~~Company maintains a high quality, liquid investment portfolio that is primarily held at its insurance and banking subsidiaries. ~~The Company maintains a high quality, liquid investment portfolio.~~ As of December 31, ~~2011, the Company’s debt and equity investment securities portfolio consists of approximately~~2014, 90% ~~of fixed income securities. As of that date, over 70%~~ of the Company’s investment portfolio consisted of fixed

income ~~investments are held in~~ securities, ~~that are~~of which 66% were United States government-backed or rated AAA and ~~approximately 98% of the fixed income portfolio is~~97% were rated or classified as investment grade. Percentages are based on the amortized cost basis of the securities. Credit ratings are based on S&P and Moody’s published ratings. If a security was rated differently by both rating agencies, the lower of the two ratings was selected.

The table below outlines the composition of the investment portfolio ~~currently~~ in an unrealized loss position, by credit rating, (percentages are based on the amortized cost basis of the investments)~~. Credit ratings are based on S&P and Moody’s published ratings and are exclusive~~ as of ~~insurance effects. If a security was rated differently by both rating agencies, the lower of the two ratings was selected:~~December 31, 2014:

   A-Ratings
or
Higher BBB+
to BBB-
Ratings Non-
Investment
Grade/Not
Rated
December 31, 2011

Municipal bonds
   95.8 % 0.0 % 4.2 %
Foreign bonds
   99.2 % 0.8 % 0.0 %
Governmental agency bonds
   100.0 % 0.0 % 0.0 %
Governmental agency mortgage-backed securities
   100.0 % 0.0 % 0.0 %
Non-agency mortgage-backed securities
   0.0 % 0.0 % 100.0 %
Corporate debt securities
   92.5 % 7.5 % 0.0 %
Preferred stock
   0.0 % 100.0 % 0.0 %


   89.9 % 1.3 % 8.8 %

In connection with the Separation, TFAC issued to the Company and FATICO a number of shares of its common stock that resulted in the Company and FATICO collectively owning 12.9 million shares of CoreLogic’s common stock immediately following the Separation. Due to the fact that a substantial proportion of the Company’s investment portfolio consists of the common stock of a single issuer, CoreLogic, the Company sold 4.0 million shares in April 2011 to reduce its unsystematic risk. At December 31, 2011, the Company owned 8.9 million shares of CoreLogic common stock with a cost basis of $167.6 million and an estimated fair value of $115.5 million. The Company holds 6.0 million shares at the holding company and the remaining 2.9 million shares at FATICO. The Company has agreed to dispose of the shares within five years after the Separation or to bear any adverse tax consequences arising as a result of holding the shares for a longer period. The Company will continue to closely monitor and regularly review its investment in CoreLogic common stock.

	A-Ratings or Higher			BBB+ to BBB- Ratings			Non- Investment Grade/Not Rated
December 31, 2014
US Treasury bonds		100.0	%		0.0	%		0.0	%
Municipal bonds		97.9	%		0.0	%		2.1	%
Foreign bonds		99.0	%		1.0	%		0.0	%
Governmental agency bonds		100.0	%		0.0	%		0.0	%
Governmental agency mortgage-backed securities		100.0	%		0.0	%		0.0	%
Non-agency mortgage-backed securities		0.0	%		0.0	%		100.0	%
Corporate debt securities		44.5	%		32.0	%		23.5	%
Preferred stock		0.0	%		45.1	%		54.9	%
		89.5	%		5.6	%		4.9	%

In addition to its debt and equity investment securities portfolio, the Company maintains certain money-market and other short-term investments.

Capital expenditures. Capital expenditures primarily consist of additions to property and equipment, capitalized software development costs and additions to title plants. Capital expenditures were ~~$75.4~~$99.4 million, ~~$88.7~~$87.1 million and ~~$42.3~~$83.9 million for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively. The

~~decrease~~ increase in ~~2011~~2014 from ~~2010~~2013 was primarily ~~attributable~~related to ahigher software, capitalized real estate data and title plant additions partially offset by lower ~~level of~~property and equipment additions in 2014 when compared to 2013. The increase in 2013 from 2012 was primarily related to higher property and equipment additions, partially offset by lower title plant additions in ~~2011~~2013 when compared to 2010. The increase in 2010 over 2009 was primarily related to a higher level of capitalized software development costs and title plant additions in 2010 when compared to 2009, and the buyout of several fixed asset operating leases in 2010.2012.

Contractual obligations. A summary, by due date, of the Company’s total contractual obligations at December 31, ~~2011,~~2014, is as follows:

   Total    Less than 1
year    1-3 years    3-5 years    More than
5 years
   (in thousands)
Notes and contracts payable
   $ 299,975       $ 30,155       $ 221,910       $ 19,499       $ 28,411
Interest on notes and contracts payable
   29,317       11,942       8,552       3,609       5,214
Operating leases
   258,201       84,036       111,953       45,854       16,358
Deposits
   1,093,236       1,072,703       14,961       5,572       —
Claim losses
   1,014,676       256,048       257,998       151,435       349,195
Pension and supplemental benefit plans
   520,349       34,150       79,382       51,687       355,130










   $ 3,215,754       $ 1,489,034       $ 694,756       $ 277,656       $ 754,308

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Notes and contracts payable	$	587,337	$	4,899	$	9,467	$	7,454		565,517
Interest on notes and contracts payable		238,088		26,551		52,327		51,595		107,615
Operating leases		323,961		79,243		124,586		59,859		60,273
Deposits		2,332,714		2,332,714		—		—		—
Claim losses		1,011,780		264,175		289,925		163,194		294,486
Pension and supplemental benefit plans		549,673		35,813		67,679		50,056		396,125
	$	5,043,553	$	2,743,395	$	543,984	$	332,158	$	1,424,016

The timing of claim payments is estimated and is not set contractually. Nonetheless, based on historical claims experience, the Company anticipates the above payment patterns. Changes in future claim settlement patterns, judicial decisions, legislation, economic conditions and other factors could affect the timing and amount of actual claim payments. The timing and amount of payments in connection with pension and supplemental benefit plans isare based on the Company’s current estimate and ~~requires~~require the use of significant assumptions. Changes in significant assumptions could affect the amount and timing of pension and supplemental benefit plan payments. See Note 14 Employee Benefit Plans to the consolidated financial statements for additional discussion of management’s significant assumptions. The Company is not able to reasonably estimate the timing of payments, or the amount by which the liability for the Company’s uncertain tax positions will increase or decrease over time; therefore the liability of ~~$17.3~~$24.1 million has not been included in the contractual obligations table. See Note 12 Income Taxes to the consolidated financial statements for additional discussion of the Company’s liability for uncertain tax positions.

Off-balance sheet arrangements. The Company administers escrow deposits and trust assets as a service to its customers. Escrow deposits totaled ~~$3.07~~$6.3 billion and ~~$3.03~~$4.7 billion at December 31, ~~2011~~2014 and ~~2010,~~2013, respectively, of which ~~$0.9~~$2.2 billion and ~~$0.9~~$1.6 billion, respectively, were held at the Company’s federal savings bank subsidiary, First American Trust, FSB. The escrow deposits held at First American Trust, FSB are ~~included in the accompanying consolidated balance sheets,~~temporarily invested in cash and cash equivalents and debt and equity securities, with offsetting liabilities included in ~~deposits.~~deposits in the accompanying consolidated balance sheets. The remaining escrow deposits were held at third-party financial institutions.

Trust assets held or managed by First American Trust, FSB totaled ~~$2.8 billion and $2.9~~$3.0 billion at December 31, ~~2011~~2014 and ~~2010, respectively, and were held at First American Trust, FSB.~~2013. Escrow deposits held at third-party financial institutions and trust assets are not considered assets of the Company and, therefore, are not included in the accompanying consolidated balance sheets. However, the Company could be held contingently liable for the disposition of these assets.

In conducting its operations, the Company often holds customers’ assets in escrow, pending completion of real estate ~~transactions. As~~transactions and, as a result, ~~of holding these customers’ assets in escrow,~~ the Company has ongoing programs for realizing economic benefits, including investment programs, borrowing agreements, and vendor services arrangements with various financial institutions. The effects of these programs are included in the consolidated financial statements as income or a reduction in expense, as appropriate, based on the nature of the arrangement and benefit received.

The Company facilitates tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be acquired with such proceeds. Upon the completion of each such exchange, the identified property is transferred to the customer or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the property held by the Company is transferred to the customer. Like-kind exchange funds held by the Company totaled ~~$564.7 million~~$2.4 billion and ~~$609.9 million~~$1.4 billion at December 31, ~~2011~~2014 and ~~2010, respectively, of which none and $408.8 million, respectively, were held at the Company’s subsidiary, First Security Business Bank (“FSBB”).~~2013, respectively. The like-kind exchange deposits ~~held at FSBB~~ are ~~included in the accompanying consolidated balance sheets in cash and cash equivalents with offsetting liabilities included in deposits. The remaining exchange deposits were~~ held at third-party financial institutions and, due to the structure utilized to facilitate these transactions, the proceeds and property are not considered assets of the Company and, therefore, are not included in the accompanying consolidated balance sheets. ~~Such~~All such amounts are placed in ~~bank deposits with FDIC~~deposit accounts insured, ~~institutions.~~up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the return on the proceeds.

During the third quarter of 2011, the Company began the multi-year process of winding-down the operations of FSBB. FSBB continues to accept and service certain deposits and to service its existing loan portfolio, but is no longer accepting like-kind exchange deposits or originating or purchasing new loans.

At December 31, ~~2011~~2014 and ~~2010,~~2013, the Company was contingently liable for guarantees of indebtedness owed by affiliates and third parties to banks and others totaling ~~$31.0~~$8.9 million and ~~$34.9~~$14.7 million, respectively. The guarantee arrangements relate to promissory notes and other contracts ~~and~~that contingently require the Company to make payments to the guaranteed party ~~based on~~upon the failure of debtors to make scheduled payments according to the terms of the notes and contracts. The Company’s maximum potential ~~amount of future payments~~obligation under these guarantees totaled ~~$31.0~~$8.9 million and ~~$34.9~~$14.7 million at December 31, ~~2011~~2014 and ~~2010,~~2013, respectively, and is limited in duration to the terms of the underlying indebtedness. The Company has not incurred any costs as a result of these guarantees and has not recorded a liability on its consolidated balance sheets related to these guarantees at December 31, ~~2011~~2014 and ~~2010.~~2013.

~~Item 7A.~~

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s assets and ~~Qualitative Disclosures about Market Risk~~liabilities include financial instruments subject to the risk of loss from adverse changes in market rates and prices. The Company’s primary market risk exposures relate to interest rate risk, equity price risk, foreign currency risk and credit risk.

~~Interest Rate Risk~~

The Company manages its primary market risk exposures through an investment committee made up of certain senior executives which is advised by an experienced investment management staff.

The Company has selected a new disclosure alternative, from among the three alternatives allowed, to present quantitative information about market risk specific to interest rate risk ~~associated with certain~~and equity price risk for 2014 and 2013. The Company has determined that a change from the tabular presentation of information related to market risk sensitive instruments to a sensitivity analysis disclosure of potential losses would be more useful to third party users of the Company’s financial ~~instruments.~~ statements as a sensitivity analysis presents how adverse changes in market rates and prices could impact the Company’s financial results.

While the hypothetical scenarios below are considered to be near-term reasonably possible changes demonstrating potential risk, they are for illustrative purposes only and do not reflect the Company’s expectations about future market changes.

Interest Rate Risk

The Company monitors its risk associated with fluctuations in interest rates and makes investment decisions to manage accordingly. The Company does not currently use derivative financial instruments in any material amount to hedge these risks.

The ~~table below provides information about certain assets~~Company’s exposure to interest rate changes primarily results from the Company’s significant portfolio of fixed income securities and ~~liabilities as~~from its financing activities. In general, the fair value of fixed income securities increases or decreases inversely with changes in market interest rates. The Company also considers its investments in preferred stock, which are tied to interest rates, to be exposed to interest rate risk. The fair values of the Company’s fixed income portfolio at December 31, 2014 and 2013 were $3.5 billion and $2.8 billion, respectively. One means of assessing the exposure of the Company’s fixed income portfolio to interest rate changes is a duration-based analysis that measures the potential changes in fair value resulting from a hypothetical parallel and instantaneous shift in interest rates across all maturities. Under this model, with all other factors held constant, the Company estimates that increases in interest rates of 100 and 200 basis points could cause the fair value of its fixed income portfolio (including investments in preferred stock) at December 31, 2014 to decrease by approximately $110 million, or 3.2%, and $217 million, or 6.2%, respectively, and at December 31, 2013 to decrease by approximately $98 million, or 3.5%, and $194 million, or 6.8%, respectively.

With respect to floating rate debt, the Company is primarily exposed to the effects of changes in prevailing interest rates through its variable rate credit facility and its interest bearing escrow deposit liabilities. As of December 31, ~~2011~~2014 and 2013, the Company had no outstanding borrowings under its credit facility. Assuming the full utilization of available funds under the facility of $700.0 million and $600.0 million at December 31, 2014 and 2013, respectively, and assuming that the borrowings were outstanding for the entire year, increases of 50 and 100 basis points in the prevailing interest rate on the Company’s credit facility would result in increases in interest expense of $3.5 million and $7.0 million, respectively, for 2014 and increases of $3.0 million and $6.0 million, respectively, for 2013.

The Company’s interest bearing escrow deposit liabilities totaled $2.0 billion and $1.4 billion at December 31, 2014 and 2013, respectively. These variable rate customer savings accounts are ~~sensitive~~subject to ~~changes~~market rate fluctuations. Weighted average interest rates for 2014 and 2013 were 0.11% and 0.13%, respectively. Assuming increases in interest rates of 25 and ~~presents cash flows~~50 basis points and the ~~related weighted average~~deposit amounts at December 31, 2014 and 2013 are held constant for the entire year, interest ~~rates~~expense for 2014 would be higher by ~~expected maturity dates.~~

$4.9 million and $9.8 million, respectively, and for 2013 interest expense would be higher by $3.4 million and $6.9 million, respectively.

2012 2013 2014 2015 2016 Thereafter Total Fair Value
(in thousands except percentages)
Assets

Deposits with Savings and Loan Associations and Banks

Book Value
$ 56,201    $ 56,201    $ 56,201
Average Interest Rate
1.09 %
Debt Securities

Amortized Cost
$ 105,687    84,075    115,419    131,796    142,371    1,588,232    $ 2,167,580    $ 2,201,911
Average Interest Rate
3.42 % 4.17 % 3.42 % 3.26 % 3.58 % 2.60 %
Notes Receivable

Book Value
$ 2,767    1,561    4,359    968    1,382    7,946    $ 18,983    $ 14,534
Average Interest Rate
5.68 % 5.71 % 5.16 % 5.13 % 5.79 % 5.87 %
Loans Receivable

Book Value
$ 2,437    1,284    2,499    9,363    6,033    122,539    $ 144,155    $ 144,868
Average Interest Rate
7.25 % 6.33 % 6.14 % 6.08 % 6.99 % 6.44 %
Liabilities

Interest Bearing Escrow Deposits

Book Value
$ 744,917    $ 744,917    $ 744,917
Average Interest Rate
0.25 %
Variable Rate Deposits

Book Value
$ 26,840    $ 26,840    $ 26,840
Average Interest Rate
0.65 %
Fixed Rate Deposits

Book Value
$ 23,239    10,501    4,460    4,206    1,366    $ 43,772    $ 44,307
Average Interest Rate
1.55 % 1.82 % 2.27 % 2.70 % 1.91 %
Notes and Contracts Payable

Book Value
$ 30,155    208,451    13,459    15,327    4,172    28,411    $ 299,975    $ 304,806
Average Interest Rate
3.23 % 3.40 % 4.52 % 4.66 % 5.29 % 5.26 %

Equity Price Risk

The Company is also subject to equity price risk related to its equity securities portfolio. At December 31, 2011, the Company had equity securities with a cost basis of $231.9 million and estimated fair value of $184.0 million. Included in the equity securities portfolio are shares of CoreLogic common stock, which the Company received in connection with the Separation, with a cost basis of $167.6 million and estimated fair value of $115.5 million at December 31, 2011. The Company manages its equity price risk ~~including the risk associated with its CoreLogic common stock,~~ through an investment committee made up of certain senior executives which is advised by an experienced investment management staff. The fair value of the Company’s equity securities portfolio (excluding preferred stock of $15.5 million and $11.1 million) was $386.9 million and $347.0 million as of December 31, 2014 and 2013, respectively.

Assuming broad-based declines in equity market prices of 10% and 20%, with all other factors constant, the fair value of the Company’s equity securities at December 31, 2014 could decrease by $38.7 million and $77.4 million, respectively, and at December 31, 2013 could decrease by $34.7 million and $69.4 million, respectively.

Foreign Currency Risk

Although the Company has exchange rate risk for its operations in certain foreign countries, this risk is not material to the Company’s financial condition or results of operations. The Company does not currently use derivative financial instruments in any material amount to hedge its foreign exchange risk.

Credit Risk

The Company’s ~~corporate, municipal, foreign, non-agency mortgage-backed and, to a lesser extent, its agency~~debt securities ~~are~~portfolio is subject to credit risk. The Company manages its credit risk through actively monitoring issuer financial reports, credit spreads, security pricing and credit rating migration. Further, diversification and concentration limits by asset type and ~~per issuer~~credit rating are established and monitored by the Company’s investment committee.

The Company’s non-agency mortgage-backed securities credit risk is analyzed by monitoring servicer reports and through utilization of sophisticated cash flow models to measure the default characteristics of the underlying collateral pools.

The Company holds a large concentration in U.S. government agency securities, including agency mortgage-backed securities. In the event of discontinued U.S. government support of its federal agencies, material credit risk could be observed in the portfolio. The Company views that scenario as unlikely but possible. The federal government currently is considering various alternatives to reform the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The nature and timing of the reforms is unknown, however, the federal government ~~recently~~ reiterated its commitment to ensuring that Fannie Mae and Freddie Mac have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations.

The Company’s overall investment securities portfolio maintains an average credit quality of AA.

~~Item 8. Financial Statements and Supplementary Data~~

Separate financial statements for subsidiaries not consolidated and 50% or less owned persons accounted for by the equity method have been omitted because they would not constitute a significant subsidiary.

~~INDEX~~

Item 8.

Financial Statements and Supplementary Data

INDEX


	Page No.
Report of Independent Registered Public Accounting Firm		60	49
Financial Statements:
Consolidated Balance Sheets		61	50
Consolidated Statements of Income		62	51
Consolidated Statements of Comprehensive Income		63	52
Consolidated Statements of Equity		64	53
Consolidated Statements of Cash Flows		65	54
Notes to Consolidated Financial Statements		66	55
Unaudited Quarterly Financial Data		~~127~~	99
Financial Statement Schedules:
I. Summary of Investments—Other than Investments in Related Parties		~~128~~	100
II. Condensed Financial Information of Registrant		~~129~~	101
III. Supplementary Insurance Information		~~133~~	106
IV. Reinsurance		~~135~~	108
V. Valuation and Qualifying Accounts		~~136~~	109

Financial statement schedules not listed are either omitted because they are not applicable or the required information is shown in the consolidated financial statements or in the notes thereto.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

First American Financial Corporation:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of First American Financial Corporation and its subsidiaries at December 31, ~~2011~~2014 and ~~2010,~~2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2011~~2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying indexpresent fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2011,~~2014, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The ~~Company’s~~Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in ~~the Management’s~~Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the ~~Company’s~~Company's internal control over financial reporting based on our ~~audits (which were~~ integrated ~~audits in 2011 and 2010).~~audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1, amounts recorded for allocations of certain expenses directly attributable to the operations of First American Financial Corporation prior to June 1, 2010 are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company operated as a separate, stand-alone entity.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ P~~RICEWATERHOUSE~~C~~OOPERS~~RICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

~~Orange County,~~Los Angeles, California

February ~~27, 2012~~

23, 2015

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)


	December 31,						December 31,
	2011			2010			2014			2013
ASSETS
Cash and cash equivalents	$	418,299		$	728,746		$	1,190,080		$	834,837
Accounts and accrued income receivable, less allowances ($30,504 and $39,904)		227,847			234,539
Accounts and accrued income receivable, less allowances of $34,662 and $31,831								276,610			236,895
Income taxes receivable		20,431			22,266			5,547			37,632
Investments:
Deposits with savings and loan associations and banks		56,201			59,974
Debt securities		2,201,911			2,107,984
Deposits with banks								21,445			23,492
Debt securities, includes pledged securities of $120,742 and $123,956								3,450,252			2,819,817
Equity securities		184,000			282,416			402,412			358,043
Other long-term investments		200,805			213,877			159,783			183,976
Notes receivable from CoreLogic		—			18,787

		2,642,917			2,683,038
								4,033,892			3,385,328
Loans receivable, net		139,191			161,526			—			73,755
Property and equipment, net		337,578			345,871			395,287			361,348
Title plants and other indexes		513,998			504,606			530,589			523,879
Deferred income taxes		39,617			96,846			19,712			27,478
Goodwill		818,420			812,031			959,945			846,026
Other intangible assets, net		59,994			70,050			55,812			46,347
Other assets		152,045			162,307			198,626			185,658
							$	7,666,100		$	6,559,183
	$	5,370,337		$	5,821,826

LIABILITIES AND EQUITY
Deposits	$	1,093,236		$	1,482,557		$	2,332,714		$	1,692,932
Accounts payable and accrued liabilities:
Accounts payable		27,525			33,350			26,264			26,378
Personnel costs		137,024			137,848			184,994			183,344
Pension costs and other retirement plans		432,456			409,317			477,763			388,993
Other		138,929			155,889			165,084			197,097
								854,105			795,812
		735,934			736,404

Due to CoreLogic, net		35,951			62,370
Deferred revenue		155,626			144,719			202,764			192,184
Reserve for known and incurred but not reported claims		1,014,676			1,108,238			1,011,780			1,018,365
Income taxes payable								6,228			—
Deferred income taxes								95,128			93,362
Notes and contracts payable		299,975			293,817			587,337			310,285
								5,090,056			4,102,940
		3,335,398			3,828,105

Commitments and contingencies
Commitments and contingencies (Notes 18 and 20)
Stockholders’ equity:
Preferred stock, $0.00001 par value, Authorized—500 shares; Outstanding—none		—			—
Common stock, $0.00001 par value:
Authorized—300,000 shares; Outstanding—105,410 shares and 104,457 shares as of December 31, 2011 and 2010, respectively		1			1
Preferred stock, $0.00001 par value; Authorized—500 shares; Outstanding—none								—			—
Common stock, $0.00001 par value; Authorized—300,000 shares;
Outstanding—107,541 shares and 105,900 shares								1			1
Additional paid-in capital		2,081,242			2,057,098			2,109,712			2,077,828
Retained earnings		124,816			72,074			662,310			520,764
Accumulated other comprehensive loss		(177,459	)		(149,156	)		(199,106	)		(145,544	)

Total stockholders’ equity		2,028,600			1,980,017			2,572,917			2,453,049
Noncontrolling interests		6,339			13,704			3,127			3,194

Total equity		2,034,939			1,993,721			2,576,044			2,456,243
							$	7,666,100		$	6,559,183
	$	5,370,337		$	5,821,826

See Notes to Consolidated Financial Statements

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

	Year Ended December 31,
	2014			2013		2012
Revenues:
Direct premiums and escrow fees	$	2,115,274		$	2,184,464	$	2,041,740
Agent premiums		1,841,618			2,044,862		1,709,905
Information and other		619,949			627,645		645,023
Net investment income		71,041			89,895		81,031
Net realized investment gains		31,768			9,211		67,686
Net other-than-temporary impairment losses		(1,701	)		—		(3,564	)
		4,677,949			4,956,077		4,541,821
Expenses:
Personnel costs		1,410,752			1,445,582		1,334,866
Premiums retained by agents		1,470,895			1,636,694		1,370,193
Other operating expenses		833,681			885,805		836,319
Provision for policy losses and other claims		450,023			530,356		397,717
Depreciation and amortization		85,597			74,916		74,950
Premium taxes		57,194			56,715		51,304
Interest		19,247			15,301		9,066
		4,327,389			4,645,369		4,074,415
Income before income taxes		350,560			310,708		467,406
Income taxes		116,345			123,644		165,678
Net income		234,215			187,064		301,728
Less: Net income attributable to noncontrolling interests		681			697		687
Net income attributable to the Company	$	233,534		$	186,367	$	301,041
Net income per share attributable to the Company’s stockholders:
Basic	$	2.18		$	1.74	$	2.83
Diluted	$	2.15		$	1.71	$	2.77
Cash dividends declared per share	$	0.84		$	0.48	$	0.36
Weighted-average common shares outstanding:
Basic		106,884			106,991		106,307
Diluted		108,688			109,102		108,542

See Notes to Consolidated Financial Statements

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in ~~thousands, except per share amounts)~~thousands)

   Year Ended December 31,
   2011 2010 2009
Revenues:

Direct premiums and escrow fees
   $ 1,634,177    $ 1,663,956    $ 1,760,571
Agent premiums
   1,491,943    1,517,704    1,524,120
Information and other
   621,483    628,504    667,115
Investment income
   82,153    94,262    120,249
Net realized investment (losses) gains
   (114 ) 10,209    14,637
Net other-than-temporary impairment (“OTTI”) losses recognized in earnings:

Total OTTI losses on equity securities
   —      (1,722 ) (21,051 )
Total OTTI losses on debt securities
   (12,748 ) (8,497 ) (45,020 )
Portion of OTTI losses on debt securities recognized in other comprehensive loss
   3,680    2,196    26,213


   (9,068 ) (8,023 ) (39,858 )


   3,820,574    3,906,612    4,046,834


Expenses:

Personnel costs
   1,186,479    1,214,434    1,216,565
Premiums retained by agents
   1,195,282    1,222,274    1,229,229
Other operating expenses
   753,750    803,603    909,466
Provision for policy losses and other claims
   420,136    320,874    346,714
Depreciation and amortization
   76,889    80,642    84,212
Premium taxes
   45,663    37,780    36,484
Interest
   12,082    14,899    19,819


   3,690,281    3,694,506    3,842,489


Income before income taxes
   130,293    212,106    204,345
Income taxes
   51,714    83,150    70,068


Net income
   78,579    128,956    134,277
Less: Net income attributable to noncontrolling interests
   303    1,127    11,888


Net income attributable to the Company
   $ 78,276    $ 127,829    $ 122,389


Net income per share attributable to the Company’s stockholders:

Basic
   $ 0.74    $ 1.23    $ 1.18


Diluted
   $ 0.73    $ 1.20    $ 1.18


Cash dividends per share
   $ 0.24    $ 0.18    $ —


Weighted-average common shares outstanding:

Basic
   105,197    104,134    104,006


Diluted
   106,914    106,177    104,006

	Year Ended December 31,
	2014			2013			2012
Net income	$	234,215		$	187,064		$	301,728
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities		18,862			(32,992	)		31,445
Unrealized gain on securities for which credit losses have been recognized in earnings		776			2,327			3,902
Foreign currency translation adjustment		(16,694	)		(13,650	)		5,131
Pension benefit adjustment		(56,496	)		49,324			(13,571	)
Total other comprehensive income (loss), net of tax		(53,552	)		5,009			26,907
Comprehensive income		180,663			192,073			328,635
Less: Comprehensive income attributable to noncontrolling interests		691			694			691
Comprehensive income attributable to the Company	$	179,972		$	191,379		$	327,944

See Notes to Consolidated Financial Statements

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~EQUITY

(in thousands)

   Year Ended December 31,
   2011 2010 2009
Net income
   $ 78,579    $ 128,956    $ 134,277


Other comprehensive income (loss), net of tax:

Unrealized (loss) gain on securities
   (12,316 ) 2,489    51,873
Unrealized gain on securities for which credit-related portion was recognized in earnings
   2,144    4,820    10,173
Foreign currency translation adjustment
   (6,167 ) 5,705    31,972
Pension benefit adjustment
   (12,034 ) (10,629 ) 20,846


Total other comprehensive (loss) income, net of tax
   (28,373 ) 2,385    114,864


Comprehensive income
   50,206    131,341    249,141
Less: Comprehensive income attributable to noncontrolling interests
   233    5,177    12,788


Comprehensive income attributable to the Company
   $ 49,973    $ 126,164    $ 236,353

	First American Financial Corporation Stockholders
	Shares			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders’ equity			Noncontrolling interests			Total
Balance at December 31, 2011		105,410		$	1	$	2,081,242		$	124,816		$	(177,459	)	$	2,028,600		$	6,339		$	2,034,939
Net income for 2012		—			—		—			301,041			—			301,041			687			301,728
Dividends on common shares		—			—		—			(37,612	)		—			(37,612	)		—			(37,612	)
Shares issued in connection with share-based compensation plans		1,829			—		16,270			(1,230	)		—			15,040			—			15,040
Share-based compensation expense		—			—		14,839			—			—			14,839			—			14,839
Net activity related to noncontrolling interests		—			—		(746	)		—			—			(746	)		(3,326	)		(4,072	)
Other comprehensive income (Note 19)		—			—		—			—			26,903			26,903			4			26,907
Balance at December 31, 2012		107,239			1		2,111,605			387,015			(150,556	)		2,348,065			3,704			2,351,769
Net income for 2013		—			—		—			186,367			—			186,367			697			187,064
Dividends on common shares		—			—		—			(51,324	)		—			(51,324	)		—			(51,324	)
Purchase of Company shares	��	(2,951	)		—		(64,606	)		—			—			(64,606	)		—			(64,606	)
Shares issued in connection with share-based compensation plans		1,612			—		9,232			(1,294	)		—			7,938			—			7,938
Share-based compensation expense		—			—		22,301			—			—			22,301			—			22,301
Net activity related to noncontrolling interests		—			—		(704	)		—			—			(704	)		(1,204	)		(1,908	)
Other comprehensive income (loss) (Note 19)		—			—		—			—			5,012			5,012			(3	)		5,009
Balance at December 31, 2013		105,900			1		2,077,828			520,764			(145,544	)		2,453,049			3,194			2,456,243
Net income for 2014		—			—		—			233,534			—			233,534			681			234,215
Dividends on common shares		—			—		—			(89,939	)		—			(89,939	)		—			(89,939	)
Shares issued in connection with share-based compensation plans		1,641			—		12,506			(2,049	)		—			10,457			—			10,457
Share-based compensation expense		—			—		19,302			—			—			19,302			—			19,302
Net activity related to noncontrolling interests		—			—		76			—			—			76			(758	)		(682	)
Other comprehensive income (loss) (Note 19)		—			—		—			—			(53,562	)		(53,562	)		10			(53,552	)
Balance at December 31, 2014		107,541		$	1	$	2,109,712		$	662,310		$	(199,106	)	$	2,572,917		$	3,127		$	2,576,044

See Notes to Consolidated Financial Statements

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF ~~EQUITY~~CASH FLOWS

(in thousands)

First American Financial Corporation Stockholders
Shares Common
stock Additional
paid-in
capital Retained
earnings TFAC’s
invested
equity Accumulated
other
comprehensive
loss Noncontrolling
interests Total
Balance at December 31, 2008
—      —      —      —      2,153,296    (261,455 ) 82,424    1,974,265
Net income for 2009
—      —      —      —      122,389    —      11,888    134,277
Sale of subsidiary shares to /other increases in noncontrolling interests
—      —      —      —      —      —      30,348    30,348
Purchase of subsidiary shares from /other decreases in noncontrolling interests
—      —      —      —      26,948    —      (103,131 ) (76,183 )
Distributions to noncontrolling interests
—      —      —      —      —      —      (9,378 ) (9,378 )
Dividends to TFAC
—      —      —      —      (83,000 ) —      —      (83,000 )
Other comprehensive income (Note 20)
—      —      —      —      —      113,964    900    114,864
Net distributions to TFAC
—      —      —      —      (52,342 ) —      —      (52,342 )

Balance at December 31, 2009
—      —      —      —      2,167,291    (147,491 ) 13,051    2,032,851
Net income earned prior to June 1, 2010 separation
—      —      —      —      36,777    —      147    36,924
Net contributions from TFAC
—      —      —      —      2,097    —      —      2,097
Distribution to TFAC upon separation
—      —      —      —      (156,570 ) (22,051 ) —      (178,621 )
Capitalization as a result of separation from TFAC
—      —      2,047,528    —      (2,047,528 ) —      —      —
Issuance of common stock at separation
104,006    1    (1 ) —      —      —      —      —
Net income earned following June 1, 2010 separation
—      —      —      91,052    —      —      980    92,032
Dividends on common shares
—      —   �� —      (18,553 ) —      —      —      (18,553 )
Shares issued in connection with restricted stock unit, option and benefit plans
451    —      2,855    (425 ) —      —      —      2,430
Share-based compensation expense
—      —      6,852    —      —      —      —      6,852
Purchase of subsidiary shares from /other decreases in noncontrolling interests
—      —      (136 ) —      (2,067 ) —      (3,501 ) (5,704 )
Sale of subsidiary shares to /other increases in noncontrolling interests
—      —      —      —      —      —      110    110
Distributions to noncontrolling interests
—      —      —      —      —      —      (1,133 ) (1,133 )
Other comprehensive income (Note 20)
—      —      —      —      —      20,386    4,050    24,436

Balance at December 31, 2010
104,457    1    2,057,098    72,074    —      (149,156 ) 13,704    1,993,721
Net income for 2011
—      —      —      78,276    —      —      303    78,579
Contribution from TFAC as a result of separation
—      —      5,164    —      —      —      —      5,164
Dividends on common shares
—      —      —      (24,784 ) —      —      —      (24,784 )
Purchase of Company shares
(204 ) —      (2,502 ) —      —      —      —      (2,502 )
Shares issued in connection with share-based compensation plans
1,157    —      2,958    (750 ) —      —      —      2,208
Share-based compensation expense
—      —      14,981    —      —      —      —      14,981
Purchase of subsidiary shares from /other decreases in noncontrolling interests
—      —      3,543    —      —      —      (7,699 ) (4,156 )
Sale of subsidiary shares to /other increases in noncontrolling interests
—      —      —      —      —      —      436    436
Distributions to noncontrolling interests
—      —      —      —      —      —      (335 ) (335 )
Other comprehensive income (Note 20)
—      —      —      —      —      (28,303 ) (70 ) (28,373 )

Balance at December 31, 2011
105,410    $ 1    $ 2,081,242    $ 124,816    $ —      $ (177,459 ) $ 6,339    $ 2,034,939

	Year Ended December 31,
	2014			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	234,215		$	187,064		$	301,728
Adjustments to reconcile net income to cash provided by operating activities:
Provision for policy losses and other claims		450,023			530,356			397,717
Depreciation and amortization		85,597			74,916			74,950
Amortization of premiums and accretion of discounts on securities, net		24,579			26,782			17,264
Excess tax benefits from share-based compensation		(6,856	)		(6,202	)		(2,372	)
Net realized investment gains		(31,768	)		(9,211	)		(67,686	)
Net other-than-temporary impairment losses		1,701			—			3,564
Share-based compensation		19,302			22,301			14,839
Equity in earnings of affiliates, net		16,545			(5,316	)		(6,514	)
Dividends from equity method investments		5,002			11,552			11,585
Changes in assets and liabilities excluding effects of acquisitions and noncash transactions:
Claims paid, including assets acquired, net of recoveries		(469,750	)		(479,310	)		(445,986	)
Net change in income tax accounts		45,872			2,589			64,486
(Increase) decrease in accounts and accrued income receivable		(9,950	)		23,645			(29,398	)
(Decrease) increase in accounts payable and accrued liabilities		(15,003	)		5,318			83,979
Increase in deferred revenue		10,333			20,102			14,844
Other, net		795			(26,114	)		(3,325	)
Cash provided by operating activities		360,637			378,472			429,675
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash effect of acquisitions/dispositions		(163,320	)		(5,837	)		(32,476	)
Net decrease in deposits with banks		4,211			4,747			2,522
Purchases of debt and equity securities		(1,969,009	)		(1,532,710	)		(1,796,314	)
Proceeds from sales of debt and equity securities		928,386			621,255			954,626
Proceeds from maturities of debt securities		373,969			488,684			491,674
Net change in other long-term investments		8,025			6,443			6,591
Net proceeds from sale of loans receivable		42,284			—			—
Net paydowns on loans receivable		23,926			33,597			31,839
Capital expenditures		(97,222	)		(87,142	)		(83,892	)
Proceeds from sale of property and equipment		12,058			5,807			7,767
Cash used for investing activities		(836,692	)		(465,156	)		(417,663	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits		647,857			281,739			317,957
Net proceeds from issuance of debt		594,477			249,144			440,065
Repayment of debt		(325,110	)		(168,205	)		(510,544	)
Net activity related to noncontrolling interests		(682	)		(1,894	)		(4,094	)
Excess tax benefits from share-based compensation		6,856			6,202			2,372
Net proceeds in connection with share-based compensation plans		3,601			1,736			12,668
Purchase of Company shares		—			(64,606	)		—
Cash dividends		(89,939	)		(51,324	)		(44,705	)
Cash provided by financing activities		837,060			252,792			213,719
Effect of exchange rate changes on cash		(5,762	)		(1,800	)		105
Net increase in cash and cash equivalents		355,243			164,308			225,836
Cash and cash equivalents—Beginning of year		834,837			670,529			444,693
Cash and cash equivalents—End of year	$	1,190,080		$	834,837		$	670,529
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest	$	17,327		$	10,827		$	8,909
Premium taxes	$	58,148		$	54,629		$	45,375
Income taxes, less refunds of $13,925, $1,329 and $32,269	$	72,028		$	120,313		$	87,324

See Notes to Consolidated Financial Statements

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

   Year Ended December 31,
   2011 2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income
   $ 78,579    $ 128,956    $ 134,277
Adjustments to reconcile net income to cash provided by operating activities:

Provision for policy losses and other claims
   420,136    320,874    346,714
Depreciation and amortization
   76,889    80,642    84,212
Excess tax benefits from share-based compensation
   (1,145 ) (1,080 ) (439 )
Net realized investment losses (gains)
   114    (10,209 ) (14,637 )
Net OTTI losses recognized in earnings
   9,068    8,023    39,858
Share-based compensation
   14,981    15,163    14,563
Equity in earnings of affiliates
   (8,099 ) (8,376 ) (10,877 )
Dividends from equity method investments
   11,991    8,257    3,911
Changes in assets and liabilities excluding effects of acquisitions and noncash transactions:

Claims paid, including assets acquired, net of recoveries
   (503,434 ) (456,225 ) (452,187 )
Net change in income tax accounts
   21,856    60,290    58,437
Decrease in accounts and accrued income receivable
   5,367    4,730    12,355
Increase (decrease) in accounts payable and accrued liabilities
   (32,073 ) 5,890    52,620
Net change in due to CoreLogic/TFAC
   18,595    (11,392 ) 49,589
Increase (decrease) in deferred revenue
   10,907    (1,802 ) (3,317 )
Other, net
   10,088    11,802    (81,492 )


Cash provided by operating activities
   133,820    155,543    233,587


CASH FLOWS FROM INVESTING ACTIVITIES:

Net cash effect of acquisitions/dispositions
   (2,706 ) (12,145 ) 22,350
Purchase of subsidiary shares from/other decreases in noncontrolling interests
   (4,156 ) (3,746 ) (103,131 )
Sale of subsidiary shares to/other increases in noncontrolling interests
   —      110    30,348
Net decrease in deposits with banks
   3,773    16,092    113,974
Purchases of debt and equity securities
   (1,005,804 ) (1,532,801 ) (939,229 )
Proceeds from sales of debt and equity securities
   672,095    699,342    418,552
Proceeds from maturities of debt securities
   322,009    597,838    478,870
Proceeds from redemption of Company owned life insurance
   —      19,602    —
Net decrease (increase) in other long-term investments
   3,860    13,429    (30,717 )
Proceeds from notes receivable from CoreLogic/TFAC
   18,787    2,830    4,809
Origination and purchases of loans and participations
   (13,534 ) (9,090 ) (23,729 )
Net decrease in loans receivable after originations and others
   35,869    9,461    13,524
Capital expenditures
   (69,797 ) (88,725 ) (42,304 )
Proceeds from sale of property and equipment
   9,345    8,832    12,018


Cash used for investing activities
   (30,259 ) (278,971 ) (44,665 )


CASH FLOWS FROM FINANCING ACTIVITIES:

Net change in deposits
   (389,320 ) 328,983    (144,647 )
Proceeds from issuance of debt
   24,185    213,462    8,057
Proceeds from issuance of note payable to TFAC
   —      29,087    —
Repayment of debt
   (23,117 ) (40,958 ) (52,747 )
Repayment of debt to TFAC
   —      (169,572 ) —
Distributions to noncontrolling interests
   (335 ) (1,133 ) (9,378 )
Excess tax benefits from share-based compensation
   1,145    1,080    439
Net proceeds from shares issued in connection with restricted stock unit, option and benefit plans
   1,152    2,430    —
Dividends paid to TFAC
   —      —      (83,000 )
Purchase of Company shares
   (2,502 ) —      —
Cash dividends
   (25,216 ) (12,502 ) —
Cash distribution to TFAC upon separation
   —      (130,000 ) —


Cash provided by (used for) financing activities
   (414,008 ) 220,877    (281,276 )


Net (decrease) increase in cash and cash equivalents
   (310,447 ) 97,449    (92,354 )
Cash and cash equivalents—Beginning of year
   728,746    631,297    723,651


Cash and cash equivalents—End of year
   $ 418,299    $ 728,746    $ 631,297


SUPPLEMENTAL INFORMATION:

Cash paid during the year for:

Interest
   $ 12,631    $ 16,717    $ 10,876
Premium taxes
   $ 38,136    $ 41,060    $ 33,520
Income taxes, net
   $ 23,862    $ 21,771    $ 25,036
Noncash investing and financing activities:

Liabilities assumed in connection with acquisitions
   $ 2,450    $ 1,100    $ 2,215
Net noncash contribution from (distribution to) TFAC upon separation
   $ 5,164    $ 2,097    $ (52,342 )
Net noncash capital contribution from TFAC
   $ —      $ (26,570 ) $ —

~~See Notes to Consolidated Financial Statements~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ~~Description of the Company:~~

Description of the Company:

First American Financial Corporation (the “Company”), through its subsidiaries, is engaged in the business of providing financial services. The Company consists of the following reportable segments and a corporate function:

The Company’s title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions involving the use of real property related data designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant records and images; and provides banking, trust and investment advisory services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies and the District of Columbia. The Company also offers title insurance and other insurance and guarantee products, as well as related settlement services segment issues title insurance policies on residential and commercial property in the United States and offers similar products and services internationally. This segment also provides closing and/or escrow services, accommodates tax-deferred exchanges of real estate, maintains, manages and provides access to title plant records and images and provides banking, trust and investment advisory services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies and the District of Columbia. The Company also offers title insurance and other insurance and guarantee products, as well as similar or related products and services, either directly or through joint ventures in foreign countries, including Canada, the United Kingdom, Australia and various other established and emerging markets.

The corporate function consists primarily of certain financing facilities as well as the corporate services that support the Company’s business operations.

Spin-off

The Company became a publicly traded company following its spin-off from its prior parent, The First American Corporation (“TFAC”) on June 1, 2010 (the “Separation”). On that date, TFAC distributed all of the Company’s outstanding shares to the record date shareholders of TFAC on a one-for-one basis (the “Distribution”). After the Distribution, the Company owns TFAC’s financial services businesses and TFAC, which reincorporated and assumed the name CoreLogic, Inc. (“CoreLogic”), ~~continues~~continued to own its information solutions businesses. The Company’s common stock trades on the New York Stock Exchange under the “FAF” ticker symbol and CoreLogic’s common stock trades on the New York Stock Exchange under the ticker symbol “CLGX.”

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

transfers, assumptions and assignments of these assets, liabilities and contracts. In particular, the Separation and Distribution Agreement provides that, subject to the terms and conditions contained therein:

All of the assets and liabilities primarily related to the Company’s business—primarily the business and operations of TFAC’s title insurance and services segment and specialty insurance segment—have been retained by or transferred to the Company;

All of the assets and liabilities primarily related to CoreLogic’s business—primarily the business and operations of TFAC’s data and analytic solutions, information and outsourcing solutions and risk mitigation and business solutions segments—have been retained by or transferred to CoreLogic;

On the record date for the Distribution, TFAC issued to the Company and its principal title insurance subsidiary, First American Title Insurance Company (“FATICO”) a number of shares of its common stock that resulted in the Company and FATICO collectively owning 12.9 million shares of CoreLogic’s common stock immediately following the Separation, some of which have subsequently been sold. See Note 19 Transactions with CoreLogic/TFAC to the consolidated financial statements for further discussion of the CoreLogic stock;

The Company effectively assumed $200.0 million of the outstanding liability for indebtedness under TFAC’s senior secured credit facility through the Company’s borrowing and transferring to CoreLogic of $200.0 million under the Company’s credit facility in connection with the Separation. See Note 10 Notes and Contracts Payable to the consolidated financial statements for further discussion of the Company’s credit facility.

The Separation resulted in a net distribution from the Company to TFAC of $151.4 million. In connection with such distribution, the Company assumed $22.1 million of accumulated other comprehensive loss, net of tax, which was primarily related to the Company’s assumption of the unfunded portion of the defined benefit pension obligation associated with participants who were employees of the businesses retained by CoreLogic. See Note 14 Employee Benefit Plans to the consolidated financial statements for additional discussion of the defined benefit pension plan.

Significant Accounting Policies:

Principles of Consolidation

~~Principles of Combination~~Reclassifications, revisions and ~~Basis of Presentation~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Reclassification~~

out-of-period adjustments

Certain ~~2009~~2012 and ~~2010~~2013 amounts have been reclassified to conform to the ~~2011~~2014 presentation.

The consolidated balance sheet as of December 31, 2013 was revised for an error which resulted in an adjustment between income taxes receivable and deferred income taxes. The adjustment resulted in an increase to income taxes

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

receivable of $11.1 million, an increase in deferred income tax assets of $27.5 million and an increase in deferred income tax liabilities of $38.6 million.

During 2014, the Company identified and recorded adjustments to correct for certain errors in foreign currency translation and transactions in prior periods. These adjustments resulted in an increase to other operating expenses of $5.0 million.

The Company does not consider these adjustments to be material, individually or in the aggregate, to either the current year or any previously issued consolidated financial statements.

Use of estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the statements. Actual results could differ from the estimates and assumptions used.

Cash and cash equivalents

The Company considers cash equivalents to be all short-term investments that have an initial maturity of 90 days or less and are not restricted for statutory deposit or premium reserve requirements.

Accounts and accrued income receivable

Accounts and accrued income receivable are generally due within thirty days and are recorded net of an allowance for doubtful accounts. We consider accounts outstanding longer than the contractual payment terms as past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history, a specific customer’s ability to pay its obligations to us, and the condition of the general economy and industry as a whole. Amounts are charged off in the period they are deemed to be uncollectible.

Investments

Deposits with ~~savings and loan associations and~~ banks are short-term investments with initial maturities of generally more than 90 days.

Debt securities are carried at fair value and consist primarily of investments in obligations of the United States Treasury, various corporations, certain state and political subdivisions and mortgage-backed securities.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The Company maintains investments in debt securities in accordance with certain statutory requirements for the funding of statutory premium reserves and state deposits. At December 31, ~~2011~~2014 and ~~2010,~~2013, the fair value of such investments totaled ~~$149.9~~$120.7 million and ~~$134.6~~$124.0 million, respectively. See Note 2 Statutory Restrictions on Investments and Stockholders’ Equity ~~to the consolidated financial statements~~ for additional discussion of the Company’s statutory restrictions.

Equity securities are carried at fair value and consist primarily of investments in exchange traded funds, mutual funds and marketable common and preferred stocks of corporate entities.

The Company classifies its publicly traded debt and equity securities as available-for-sale ~~and carries them at fair value~~ with unrealized gains or losses classified as a component of accumulated other comprehensive loss. See Note ~~3 Debt and Equity Securities to the consolidated financial statements~~15 Fair Value Measurements for additional discussion of the ~~Company’s accounting policies pertaining to~~determination of fair value. Interest income, as well as the related amortization of premium and accretion of discount, on debt securities is recognized under the effective yield method and included in the accompanying consolidated statements of income in net investment income. Realized gains and losses on sales of debt and equity securities are determined on a first-in, first-out basis.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company evaluates its debt and equity securities ~~including~~with unrealized losses on a quarterly basis for potential other-than-temporary impairments in value.

If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is other-than-temporarily impaired and it is written down to fair value with all losses recognized in earnings. As of December 31, 2014, the Company did not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell debt securities before recovery of their amortized cost basis.

If the Company does not expect to recover the amortized cost basis of a debt security with declines in fair value (even if the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt security), the losses the Company considers to be the credit portion of the other-than-temporary impairment loss (“credit loss”) is recognized in earnings and the non-credit portion is recognized in other comprehensive income. The credit loss is the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted at the rate implicit in the security immediately prior to the recognition of the other-than-temporary impairment.

Cash flows expected to be collected for each non-agency mortgage-backed security are estimated by analyzing loan-level detail to estimate future cash flows from the underlying assets, which are then applied to the security based on the underlying contractual provisions of the securitization trust that issued the security (e.g., subordination levels, remaining payment terms, etc.). The Company uses third-party software to determine how the underlying collateral cash flows will be distributed to each security issued from the securitization trust. The primary assumptions used in estimating future collateral cash flows are prepayment speeds, default rates and loss severity. In developing these assumptions, the Company considers the financial condition of the borrower, loan to value ratio, loan type and geographical location of the underlying property. The Company utilizes publicly available information related to specific assets, generally available market data such as forward interest rate curves and securities, loans and property data and market analytics tools provided through a third party.

The table below summarizes the primary assumptions used at December 31, 2014 in estimating the cash flows expected to be collected for these securities.

	Weighted average			Range
Prepayment speeds		10.0	%	8.8	%	–	14.0	%
Default rates		2.5	%	1.8	%	–	3.7	%
Loss severity		18.7	%	3.6	%	–	28.5	%

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the change in the credit portion of the other-than-temporary impairments recognized in earnings on debt securities for which a portion of the other-than-temporary impairments related to other factors was recognized in other comprehensive income (loss) for the years ended December 31, 2014, 2013, and 2012.

	December 31,
	2014		2013		2012
	(in thousands)
Cumulative credit loss on debt securities held at beginning of period	$	16,478	$	16,478	$	33,656
Addition to credit loss for which an other-than-temporary impairment was previously recognized		1,701		—		3,564
Accumulated losses on securities that matured or were sold during the year		—		—		(20,742	)
Cumulative credit loss on debt securities held at end of period	$	18,179	$	16,478	$	16,478

When a decline in the fair value of an equity security, including common and preferred stock, is considered to be other-than-temporary, such equity security is written down to its fair value. When assessing if a decline in fair value is other-than-temporary, the factors considered include the length of time and extent to which fair value has been below cost, the probability that the Company will be unable to collect all amounts due under the contractual terms of the security, the seniority of the securities, issuer-specific news and other developments, the financial condition and prospects of the issuer (including credit ratings), macro-economic changes (including the outlook for industry sectors, which includes government policy initiatives) and the Company’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery.

When an equity security has been in an unrealized loss position for greater than twelve months, the Company’s review of the security includes the above noted factors as well as other evidence that might exist supporting the view that the security will recover its value in the foreseeable future, typically within the next twelve months. If objective, substantial evidence does not indicate a likely recovery during that timeframe, the Company’s policy is that such losses are considered other-than-temporary and therefore an impairment loss is recorded. The Company did not record other-than-temporary impairment losses related to its equity securities for the years ended December 31, 2014, 2013 and 2012.

Other long-term investments consist primarily of investments in affiliates, which are accounted for under either the equity method ~~of accounting~~ or the cost method of accounting, investments in real estate and notes receivable. ~~For the year ended December 31, 2011, the Company recognized $8.6 million~~The carrying value of ~~impairment losses on other long-term investments, including $6.3 million related to~~ investments in affiliates ~~and $2.3 million related~~is written down, or impaired, to ~~notes receivable. For the year ended December 31, 2010, the Company recognized $3.9 million of impairment losses on other long-term investments, including $3.2 million related~~fair value when a decline in value is considered to ~~a note receivable and $0.7 million related to other investments. For the year ended December 31, 2009, the Company recognized a $2.2 million impairment loss on a note receivable.~~be other-than-temporary. In making the determination as to whether an individual investment in an affiliate was impaired, the Company assessed the then-current and expected financial condition of each relevant entity, including, but not limited to, the anticipated ability of the entity to make its contractually required payments to the Company (with respect to debt obligations to ~~us)~~the Company), the results of valuation work performed with respect to the entity, the entity’s anticipated ability to generate sufficient cash flows and the market conditions in the industry in which the entity was operating. The Company recognized impairment losses on equity method investments in affiliates of $22.5 million, 7.8 million and $7.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Investments in real estate are classified as held for sale and carried at the lower of cost or fair value less estimated selling costs. An impairment loss is recognized when the carrying value exceeds the estimated undiscounted future cash flows from the investment.

~~Loans~~Notes receivable

~~The performance~~ are carried at cost less reserves for losses. Loss reserves are established for notes receivable based upon an estimate of probable losses for the ~~Company’s loan portfolio~~individual notes. A loss reserve is ~~evaluated~~established on an ~~ongoing basis by management. Loans receivable are impaired~~individual note when ~~based on current information and events,~~ it is deemed probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans receivable are measured at the present value of expected future cash flows discounted at the loan’s effective interest rate. As a practical expedient, the loan may be valued based on its observable market price or the fair value of the collateral, if the loan is collateral-dependent. No indications of material impairment of loans receivable were identified during the three-year period ended December 31, 2011.

Loans, including impaired loans, are generally classified as nonaccrual if they miss more than three contractual payments, which usually represent past due between 60 to 90 days or more. Loans that are on a current payment status or miss 1 or 2 contractual payments may also be classified as nonaccrual if they are classified by the regulators in an examination, and the circumstances have not improved. The Company’s general policy is to reverse from income previously accrued but unpaid interest. While a loan is classified as nonaccrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding. Income on such loans is subsequently recognized only to the extent that cash is received and future collection of principal is probable. Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~repayment within an acceptable period of time,~~ in accordance with the contractual terms of ~~interest~~the note. The loss reserve is based upon the Company’s assessment of the borrower’s overall financial condition, resources and ~~principal. Interest income~~payment record; and, if appropriate, the realizable value of any collateral. These estimates consider all available evidence including the expected future cash flows, estimated fair value of collateral on secured notes, general economic conditions and

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

trends, and other relevant factors, as appropriate. Notes are placed on non-accrual ~~loans~~status when management determines that ~~would have been recognized during~~ the ~~years ended December 31, 2011, 2010 and 2009, if all~~collectibility of ~~such loans had been current in accordance with their original terms, totaled $163 thousand, $113 thousand, and $12 thousand, respectively.~~contractual amounts is not reasonably assured.

The allowance for loan losses is established through charges to earnings in the form of provision for loan losses. Loan losses are charged to, and recoveries are credited to, the allowance for loan losses. The provision for loan losses is determined after considering various factors, such as loan loss experience, maturity of the portfolio, size of the portfolio, borrower credit history, the existing allowance for loan losses, current charges and recoveries to the allowance for loan losses, the overall quality of the loan portfolio, and current economic conditions, as determined by management, regulatory agencies and independent credit review specialists. While many of these factors are essentially a matter of judgment and may not be reduced to a mathematical formula, the Company believes that, in light of the collateral securing its loan portfolio, the current allowance for loan losses is an adequate allowance against foreseeable losses.

The adequacy of the allowance for loan losses is based on formula allocations and specific allocations. Formula allocations are made on a percentage basis, which is dependent on the underlying collateral, the type of loan and general economic conditions. Specific allocations are made as problem or potential problem loans are identified and are based upon an evaluation by management of the status of such loans. Specific allocations may be revised from time to time as the status of problem or potential problem loans changes.

Property and equipment

Property and equipment includes computer software acquired or developed for internal use and for use with the Company’s products. Software development costs, which include capitalized interest costs and certain payroll-related costs of employees directly associated with developing software, in addition to incremental payments to third parties, are capitalized from the time technological feasibility is established until the software is ready for use.

Management uses estimated future cash flows (undiscounted and excluding interest) to measure the recoverability of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. If the undiscounted cash flow analysis indicates that the carrying amount is not recoverable, an impairment loss is recorded for the excess of the carrying amount over its fair value.

Depreciation on buildings and on furniture and equipment is computed using the straight-line method over estimated useful lives of 255 to 40 years and 31 to 1015 years, respectively. Capitalized software costs are amortized using the straight-line method over estimated useful lives of 31 to 15 years. Leasehold improvements are amortized over useful lives that are consistent with the lease term.

Title plants and other indexes

Title plants and other indexes ~~includes~~at December 31, 2014 included title plants of ~~$512.6~~$514.6 million and capitalized real estate data ~~net~~ of ~~$1.4~~$16.0 million, and at December 31, ~~2011 and~~2013 included title plants of ~~$502.9~~$523.1 million and capitalized real estate data ~~net~~ of ~~$1.7 million at December 31, 2010.~~$0.8 million. Title plants are carried at original cost, with the costs of daily maintenance (updating) charged to expense as incurred. Because properly maintained title plants have indefinite lives and do not diminish in value with the passage of time, no provision has been made for depreciation or amortization. The Company analyzes its title plants at least annually for impairment. This analysis includes, but is not limited to, the effects of obsolescence, duplication, demand and other economic factors. Capitalized real estate data is carried at cost, less amortization. Capitalized real estate data is amortized using the straight-line method over estimated useful lives of 53 to 15 years.

Business Combinations

Amounts paid for acquisitions are allocated to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair value at the date of acquisition. ~~Goodwill~~The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill

. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the date of acquisition.

Goodwill ~~is tested at least annually for impairment.~~ Impairment

The Company ~~performs the~~is required to perform an annual goodwill impairment ~~test~~assessment for each reporting unit. The Company’s four reporting units are title insurance, home warranty, property and casualty insurance and trust and other services. The Company has elected to perform this annual assessment in the fourth quarter ~~using September 30~~of each fiscal year or sooner if circumstances indicate possible impairment. Based on current guidance, the Company has the option to perform a qualitative assessment to determine if the fair value is more likely than not (i.e., a likelihood of greater than 50%) less than the carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test, or may choose to forego the ~~annual valuation date~~qualitative assessment and perform the quantitative impairment test. The qualitative factors considered in this assessment may include macroeconomic conditions, industry and market considerations, overall financial performance as well as other relevant events and circumstances as determined by the Company. The Company evaluates the weight of each factor to determine whether it is more likely than not that impairment may exist. If the results of the qualitative assessment indicate the more likely than not threshold was not met, the Company may choose not to perform the quantitative impairment test. If, however, the more likely than not threshold is met, the Company performs the quantitative test ~~goodwill for impairment.~~as required and discussed below.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The valuation of ~~goodwill requires~~each reporting unit includes the use of assumptions and estimates of many critical factors, including revenue growth rates and operating margins, discount rates and future market conditions, determination of market multiples and the establishment of a control premium, among others. Forecasts of future operations are based, in part, on operating results and ~~management’s~~the Company’s expectations as to future market conditions. These types of analyses contain uncertainties because they require ~~management~~the Company to make assumptions and to apply judgments to estimate industry economic factors and the profitability of future business strategies. However, if actual results are not consistent with the Company’s estimates and assumptions, the Company may be exposed to future goodwill impairment losses that could be material.

The Company elected to perform qualitative assessments for 2014 and 2013, the results of which supported the conclusion that the fair values of the Company’s reporting units were not more likely than not less than their carrying amounts and, therefore, a quantitative assessment was not considered necessary. For 2012, the Company performed a quantitative assessment and determined that the fair values of its reporting units exceeded their carrying amounts and, therefore, no additional analysis was required. As a result of these assessments, the Company did not record any goodwill impairment losses for 2014, 2013 or 2012.

Other intangible assets

The Company’s intangible assets consist of ~~covenants not to compete,~~noncompete agreements, customer ~~lists,~~relationships, trademarks, patents and licenses. Each of these intangible assets, excluding licenses, is amortized on a straight-line basis over ~~their~~its useful ~~lives~~life ranging from 21 to 20 years and is subject to impairment ~~tests~~assessments when there is an indication of a triggering event or abandonment. Licenses are an intangible asset with an indefinite life and are therefore not amortized but rather ~~tested~~assessed for impairment by comparing the fair value of the license with its carrying value at least annually and when an indicator of potential impairment has occurred.

~~Impairment of long-lived assets~~

~~Long-lived assets held and used include property and equipment, capitalized software and other intangible assets with a finite life.~~ Management uses estimated future cash flows (undiscounted and excluding interest) to measure the recoverability of ~~long-lived~~intangible assets ~~held and used~~with finite lives, whenever events or changes in circumstances indicate that the carrying value ~~of an asset~~ may not be fully recoverable. If the undiscounted cash flow analysis indicates ~~a long-lived asset~~that the carrying amount is not recoverable, ~~the~~an impairment loss is recorded isfor the excess of the carrying amount ~~of the asset~~ over its fair value.

In addition, the Company carries long-lived assets held for sale at the lower of cost or market as of the date that certain criteria have been met. As of December 31, 2011 and 2010 no long-lived assets were classified as held for sale.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reserve for known and incurred but not reported claims

The Company provides for title insurance losses by a charge to expense when the related premium revenue is recognized. The amount charged to expense is generally determined by applying a rate (the loss provision rate) to total title insurance premiums and escrow fees. The Company’s management estimates the loss provision rate at the beginning of each year and reassesses the rate quarterly to ensure that the resulting incurred but not reported (“IBNR”) loss reserve and known claims reserve included in the Company’s consolidated balance sheets together reflect management’s best estimate of the total costs required to settle all IBNR and known claims. If the ending IBNR reserve is not considered adequate, an adjustment is recorded.

The process of assessing the loss provision rate and the resulting IBNR reserve involves evaluation of the results of ~~both~~ an in-house actuarial ~~review and independent actuarial analysis.~~review. The Company’s in-house actuary performs a reserve analysis utilizing generally accepted actuarial methods that incorporate cumulative historical claims experience and information provided by in-house claims and operations personnel. Current economic and business trends are also reviewed and used in the reserve analysis. These include real estate and mortgage markets conditions, changes in residential and commercial real estate values, and changes in the levels of defaults and foreclosures that may affect claims levels and patterns of emergence, as well as any company-specific factors that may be relevant to past and future claims experience. Results from the analysis include, but are not limited to, a range of IBNR reserve estimates and a single point estimate for IBNR as of the balance sheet date.

For recent policy years at early stages of development (generally the last three years), IBNR is estimated using a combination of expected loss rate and multiplicative loss development factor calculations. For more mature policy years, IBNR generally is estimated using multiplicative loss development factor calculations. The expected loss rate method estimates IBNR by applying an expected loss rate to total title insurance premiums and escrow fees, and adjusting for policy year maturity using ~~the~~ estimated loss development patterns. Multiplicative loss development factor calculations estimate IBNR by applying factors derived from loss development patterns to losses realized to date. The expected loss rate and loss development patterns are based on historical experience and the relationship of the history to the applicable policy years. This is a generally accepted actuarial method of determining IBNR for policy years at early development ages. IBNR calculated in this way differs from the IBNR a multiplicative loss development factor calculation would produce. Factor-based development effectively extrapolates results to date forward through the lifetime of the policy year’s development.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Contingent litigation and regulatory liabilities

Amounts related to contingent litigation and regulatory liabilities are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable. The Company records legal fees in other operating expense in the period incurred.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~Invested Equity~~

~~Invested equity refers to the net assets of the Company which reflects TFAC’s investment in the Company prior to the Separation and excludes noncontrolling interests.~~

Revenues

Title premiums on policies issued directly by the Company are recognized on the effective date of the title policy and escrow fees are recorded upon close of the escrow. Revenues from title policies issued by independent agents are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. Revenues earned by the Company’s title plant management business are recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery.

Direct premiums of the Company’s specialty insurance segment include revenues from home warranty contracts which are generally recognized ratably over the 12-month duration of the contracts, and revenues from property and casualty insurance policies which are also recognized ratably over the 12-month duration of the policies.

Interest on loans receivable is recognized on the outstanding principal balance on the accrual basis. Loan origination fees and related direct loan origination costs are deferred and recognized over the life of the loan. Revenues earned by the ~~other products in the~~ Company’s trust ~~and banking~~ operations are recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery.

Premium taxes

Title insurance, property and casualty insurance and home warranty companies, like other types of insurers, are generally not subject to state income or franchise taxes. However, in lieu thereof, most states impose a tax based primarily on insurance premiums written. This premium tax is reported as a separate line item in the consolidated statements of income in order to provide a more meaningful disclosure of the taxation of the Company.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Legal fees~~

~~The Company records legal fees in other operating expenses in the period incurred.~~

Income taxes

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is ~~“more~~considered more likely than ~~not”~~not that some or all of the deferred tax assets will not be realized.

Share-based compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized in the Company’s financial statements over the requisite service period of the award using the straight-line method for awards that contain only a service condition and the graded vesting method for awards that contain a performance or market condition. The share-based compensation expense recognized is based on the number of shares ultimately expected to vest, net of forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company’s primary means of providing share-based compensation is through the granting of restricted stock units (“RSUs”). RSUs granted generally have graded vesting and include a service condition; and for certain key employees and executives, may also include either a performance or market condition. RSUs receive dividend equivalents in the form of RSUs having the same vesting requirements as the RSUs initially granted.

~~As of December 31, 2011, all stock options issued under the Company’s plans are vested and no share-based compensation expense related to such stock options remains to be recognized.~~

In addition, the Company has an employee stock purchase plan that allows eligible employees the option to purchase common stock of the Company at ~~85.0%~~85% of the lower of the closing price on either the first or last day of each ~~month.~~offering period.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The offering periods are three-month periods beginning on January 1, April 1, July 1 and October 1 of each fiscal year. The Company recognizes an expense in the amount equal to the ~~discount.~~value of the 15% discount and look-back feature over the three-month offering period.

Earnings per share

Basic earnings per share is computed by dividing net income available to the Company’s stockholders by the weighted-average number of common shares outstanding. The computation of diluted earnings per share is

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

similar to the computation of basic earnings per share, except that the weighted-average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if dilutive stock options had been exercised and RSUs were vested. The dilutive effect of stock options and unvested RSUs is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of stock options and vesting of RSUs would be used to purchase common shares at the average market price for the period. The assumed proceeds include the purchase price the grantee pays, the hypothetical windfall tax benefit that the Company receives upon assumed exercise or vesting and the hypothetical average unrecognized compensation expense for the period. The Company calculates the assumed proceeds from excess tax benefits based on the “as-if” deferred tax assets calculated under share based compensation standards.

Certain unvested RSUs contain nonforfeitable rights to dividends as they are eligible to participate in undistributed earnings without meeting service condition requirements. These awards are considered participating securities under the guidance which requires the use of the two-class method when computing basic and diluted earnings per share. The two-class method reduces earnings allocated to common stockholders by dividends and undistributed earnings allocated to participating securities.

Employee benefit plans

The Company recognizes the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability on its consolidated balance sheets and recognizes changes in the funded status in the year in which changes occur, through accumulated other comprehensive ~~income.~~loss. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for the other postretirement plans). Actuarial gains and losses and prior service costs and credits that have not been recognized as a component of net periodic benefit cost previously are recorded as a component of accumulated other comprehensive ~~income.~~loss. Plan assets and obligations are measured annually as of December 31.

The Company informally funds its nonqualified deferred compensation plan through tax-advantaged investments known as variable universal life insurance. The Company’s deferred compensation plan assets are included as a component of other assets and the Company’s deferred compensation plan liability is included as a component of pension costs and other retirement plans on the consolidated balance sheets. The income earned on the Company’s deferred compensation plan assets is included as a component of net investment income and the income earned by the deferred compensation plan participants is included as a component of personnel costs on the consolidated statements of income.

Foreign currency

The Company operates in foreign countries, including Canada, the United Kingdom, Australia and various other established and emerging markets. The functional currencies of the Company’s foreign subsidiaries are generally their respective local currencies. The financial statements of the foreign subsidiaries are translated into U.S. dollars as follows: assets and liabilities at the exchange rate as of the balance sheet date, equity at the historical rates of exchange, and income and expense amounts at average rates prevailing throughout the period. Translation adjustments resulting from the translation of the subsidiaries’ accounts are included in accumulated other comprehensive loss as a separate component of stockholders’ equity. Gains and losses resulting from foreign currency transactions are included within other operating expenses.

Reinsurance

The Company assumes and cedes large title insurance risks through ~~the mechanism of~~ reinsurance. Additionally, the Company’s property and casualty insurance business uses reinsurance to limit risk associated

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

with natural disasters such as windstorms, winter

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

storms, wildfires and earthquakes. In reinsurance arrangements, the primary insurer retains a certain amount of risk under a policy and cedes the remainder of the risk under the policy to the reinsurer. The primary insurer pays the reinsurer a premium in exchange for accepting this risk of loss. The primary insurer generally remains liable to its insured for the total risk, but is reinsured under the terms of the reinsurance agreement. The amount of premiums assumed and ceded is recorded as a component of direct premiums and escrow fees on the Company’s ~~income statement.~~consolidated statements of income. The total amount of premiums assumed and ceded in connection with reinsurance was less than 1.0% of consolidated premium and escrow fees for each of the three years in the period ended December 31, ~~2011.~~2014. Payments and recoveries on reinsured losses for the Company’s title insurance and property and casualty businesses were immaterial during the three years ended December 31, ~~2011.~~2014. At December 31, 2014, a reinsurance receivable of $25.0 million, which related to a large commercial title claim, was included in the Company’s consolidated balance sheets in accounts and accrued income receivable. The Company collected $23.2 million of the receivable in February 2015 and expects to collect the remaining $1.8 million during the remainder of 2015. No reinsurance receivable was included in the consolidated balance sheets at December 31, 2013.

Escrow deposits and trust assets

The Company administers escrow deposits and trust assets as a service to its customers. Escrow deposits totaled ~~$3.07~~$6.3 billion and ~~$3.03~~$4.7 billion at December 31, ~~2011~~2014 and ~~2010,~~2013, respectively, of which ~~$0.9~~$2.2 billion and ~~$0.9~~$1.6 billion, respectively, were held at the Company’s federal savings bank subsidiary, First American Trust, FSB. The escrow deposits held at First American Trust, FSB are ~~included in the accompanying consolidated balance sheets,~~temporarily invested in cash and cash equivalents and debt and equity securities, with offsetting liabilities included in ~~deposits.~~deposits in the accompanying consolidated balance sheets. The remaining escrow deposits were held at third-party financial institutions.

Like-kind exchanges

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Recently Adopted Accounting Pronouncements:

In ~~January 2010,~~July 2013, the Financial Accounting Standards Board (“FASB”) issued updated guidance ~~related~~intended to ~~fair value measurements and disclosures, which requires~~eliminate the diversity in practice regarding financial statement presentation of an unrecognized tax benefit when a ~~reporting entity to disclose separately,~~net operating loss carryforward, a ~~reconciliation for fair value measurements using significant unobservable inputs (Level 3) information about purchases, sales, issuances and settlements (that is, on~~similar tax loss, or a ~~gross basis rather than one net number).~~tax credit carryforward exists. The updated guidance is effective for interim orand annual ~~financial~~

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

reporting periods beginning after December 15, ~~2010 and for interim periods within the fiscal year. Except for the disclosure requirements, the~~2013, with early adoption permitted. The adoption of ~~this~~the guidance had no impact on the Company’s consolidated financial statements.

Pending Accounting Pronouncements:

In ~~July 2010,~~June 2014, the FASB issued updated guidance ~~related~~intended to ~~credit risk disclosures~~eliminate the diversity in practice regarding share-based payment awards that include terms which provide for ~~finance receivables and~~a performance target that affects vesting being achieved after the related allowance for credit losses. The updated guidance requires entities to disclose information at disaggregated levels, specifically defined as “portfolio segments” and “classes”. Expanded disclosures include, among other things, roll-forward schedules of the allowance for credit losses and information regarding the credit quality of receivables (including their aging) as of the end of a reportingrequisite service period. The updated guidance is effective for interim and annual reporting periods ending after December 15, 2010, although the disclosures of reporting period activity are required for interim and annual reporting periods beginning after December 15, 2010. Except for the disclosure requirements, the adoption of this guidance had no impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued updated guidance related to when goodwill impairment testing should include Step 2 for reporting units with zero or negative carrying amounts. The updated guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts requiring those entities to perform Step 2 of the goodwill impairment test if it is more likely than notnew standard requires that a ~~goodwill impairment exists. In determining whether it is more likely than~~performance target which affects vesting and could be achieved after the requisite service period be treated as a performance condition that affects vesting and should not ~~that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating an impairment may exist.~~be reflected in estimating the grant-date fair value. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2010.~~2015, with early adoption permitted. The Company expects the adoption of this guidance ~~had~~to have no impact on ~~the Company’s~~its consolidated financial statements.

In ~~September 2011,~~May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within and across industries, and across capital markets. The new revenue standard contains principles that ~~is intended to simplify how entities test goodwill for impairment. The updated guidance permits entities to first assess qualitative factors~~an entity will apply to determine ~~whether it~~the measurement of revenue and the timing of recognition. The underlying principle is ~~more likely than not~~that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the ~~fair value~~entity expects to be entitled to in exchange for those goods or services. Revenue from insurance contracts is not within the scope of ~~a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test as required under current accounting~~this guidance. The updated guidance is effective for interim and annual reporting periods beginning after December 15, ~~2011. Early~~2016, with early adoption ~~is permitted, including for interim and annual goodwill~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the more recent interim and annual period have not yet been issued.~~prohibited. The Company ~~adopted this guidance in~~is currently assessing the ~~fourth quarter of 2011, in connection with performing its annual goodwill impairment test and elected to bypass the qualitative assessment and performed the first step~~impact of the ~~two-step goodwill impairment test. The adoption of this~~new guidance ~~had no impact~~ on ~~the Company’s~~its consolidated financial statements.

~~Pending Accounting Pronouncements:~~

In ~~December 2011,~~April 2014, the FASB issued updated guidance ~~requiring entities~~which changes the criteria for determining which disposals are required to ~~disclose both gross information~~be presented as discontinued operations and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The updated guidance is effective for interim and annual reporting periods beginning on or after January 1, 2013. Except for themodifies related disclosure ~~requirements, management does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.~~

In June 2011, the FASB issued updated guidance that is intended to increase the prominence of other comprehensive income in financial statements. The updated guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, and requires consecutive presentation of the statement of net income and other comprehensive income or in a single continuous statement of comprehensive income. In addition, the option to present reclassification adjustments in the notes to financial statements has been eliminated.requirements. The updated guidance is effective for interim and annual reporting periods beginning after December ~~15, 2011. In December 2011, the FASB issued updated guidance deferring the effective date of the change in presentation of reclassification adjustments. Management~~31, 2014, with early adoption permitted. The Company expects ~~the adoption of the guidance that remains effective beginning in the first quarter of 2012 to have no impact on the Company’s consolidated financial statements.~~

NOTE 2. Statutory Restrictions on Investments and Stockholders’ Equity:

Investments ~~carried at $152.5~~totaling $133.0 million and ~~$137.9~~$128.9 million were on deposit with state treasurers in accordance with statutory requirements for the protection of policyholders at December 31, ~~2011~~2014 and ~~2010,~~2013, respectively.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available to the Company is limited, principally for the protection of policyholders. ~~Under~~As of December 31, 2014, under such regulations, the maximum amount of dividends, loans and advances available to the Company from its insurance subsidiaries in ~~2012 is $181.1~~2015, without prior approval from applicable regulators, was $570.0 million.

The Company’s principal title insurance subsidiary, ~~FATICO,~~First American Title Insurance Company (“FATICO”), maintained total statutory capital and surplus of ~~$817.6~~$971.3 million and ~~$846.8~~$996.0 million as of December 31, ~~2011~~2014 and ~~2010,~~2013, respectively. Statutory net income for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012 was ~~$80.2~~$393.1 million, ~~$42.9~~$199.1 million and ~~$190.2~~$301.9 million, respectively. FATICO was in compliance with the minimum statutory capital and surplus requirements as of December 31, 2014.

FATICO, which was previously domiciled in the state of California, redomesticated to Nebraska effective July 1, 2014. FATICO’s statutory-based financial statements were prepared in accordance with accounting practices prescribed or permitted by the Nebraska Department of Insurance for the year ended December 31, 2014 and by the California Department of Insurance for the year ended December 31, 2013. The National Association of Insurance Commissioners’ (“NAIC”) Accounting Practices and Procedures Manual (“NAIC SAP”) has been adopted as a component of prescribed or permitted practices by the states of Nebraska and California. Both states have adopted certain prescribed accounting practices that differ from those found in the NAIC SAP. Specifically, the timing of amounts released from the statutory premium reserve under both Nebraska’s and California’s required practice differs from NAIC SAP resulting in total statutory capital and surplus that was lower by $11.7 million and $193.8 million at December 31, 2014 and 2013, respectively, than if reported in accordance with NAIC SAP. Additionally, for the year ended December 31, 2014, the state of Nebraska granted a permitted accounting practice to FATICO that differs from Nebraska’s prescribed accounting practices; specifically, the determination to not

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

record a bulk reserve within the known claims reserve resulting in total statutory capital and surplus that was higher by $8.2 million at December 31, 2014 than if reported in accordance with Nebraska’s required practice.

Statutory accounting principles differ in some respects from generally accepted accounting principles, and these differences include, but are not limited to, non-admission of certain assets (principally limitations on deferred tax assets, capitalized furniture and other equipment, premiums and other receivables 90 days past due and assets acquired in connection with claim settlements other than real estate or mortgage loans secured by real ~~estate and limitations on goodwill)~~estate), reporting of bonds at amortized cost, amortization of goodwill, deferral of premiums received as statutory premium reserve, ~~and~~ supplemental reserve (if applicable) and exclusion of the incurred but not reported claims reserve.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

NOTE 3. Debt and Equity Securities:

The amortized cost and estimated fair value of investments in debt securities, all of which are classified as available-for-sale, are as follows:

   Amortized
cost    Gross unrealized Estimated
fair value    Other-than-
temporary
impairments
in AOCI
(in thousands)
      gains    losses
December 31, 2011

U.S. Treasury bonds
   $ 71,995       $ 2,236       $ —      $ 74,231       $ —
Municipal bonds
   329,935       19,272       (84 ) 349,123       —
Foreign bonds
   212,200       3,026       (206 ) 215,020       —
Governmental agency bonds
   195,784       1,970       (1 ) 197,753       —
Governmental agency mortgage-backed securities
   1,066,656       10,816       (925 ) 1,076,547       —
Non-agency mortgage-backed securities (1)
   42,089       478       (11,933 ) 30,634       32,089
Corporate debt securities
   248,921       10,420       (738 ) 258,603       —








   $ 2,167,580       $ 48,218       $ (13,887 ) $ 2,201,911       $ 32,089








December 31, 2010

U.S. Treasury bonds
   $ 96,055       $ 2,578       $ (774 ) $ 97,859       $ —
Municipal bonds
   280,471       2,925       (5,597 ) 277,799       —
Foreign bonds
   184,956       1,416       (430 ) 185,942       —
Governmental agency bonds
   241,844       1,314       (2,997 ) 240,161       —
Governmental agency mortgage-backed securities
   1,039,266       7,560       (1,329 ) 1,045,497       —
Non-agency mortgage-backed securities (1)
   63,773       277       (16,516 ) 47,534       28,409
Corporate debt securities
   209,476       5,216       (1,500 ) 213,192       —








   $ 2,115,841       $ 21,286       $ (29,143 ) $ 2,107,984       $ 28,409

~~(1)~~

At December 31, 2011, the $42.1 million amortized cost is net of $9.1 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the year ended December 31, 2011. At December 31, 2010, the $63.8 million amortized cost is net of $6.3 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the year ended December 31, 2010. At December 31, 2011, the $11.9 million gross unrealized losses include $11.4 million of unrealized losses for securities determined to be other-than-temporarily impaired and $0.5 million of unrealized losses for securities for which an other-than-temporary impairment has not been recognized. At December 31, 2010, the $16.5 million gross unrealized losses include $10.4 million of unrealized losses for securities determined to be other-than-temporarily impaired and $6.1 million of unrealized losses for securities for which an other-than-temporary impairment has not been recognized. The $32.1 million and $28.4 million other-than-temporary impairments recorded in accumulated other comprehensive income (“AOCI”) through December 31, 2011 and December 31, 2010, respectively, represent the amount of other-than-temporary impairment losses recognized in AOCI which, from January 1, 2009, were not included in earnings due to the fact that the losses were not considered to be credit related. Other-than-temporary impairments were recognized in AOCI for non-agency mortgage-backed securities only.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~


	Amortized cost		Gross unrealized					Estimated fair value
(in thousands)	Amortized cost		gains		losses			Estimated fair value
December 31, 2014
U.S. Treasury bonds	$	64,195	$	968	$	(181	)	$	64,982
Municipal bonds		577,703		10,981		(1,007	)		587,677
Foreign bonds		194,749		2,009		(8	)		196,750
Governmental agency bonds		198,330		1,562		(2,018	)		197,874
Governmental agency mortgage-backed securities		1,812,766		8,491		(9,095	)		1,812,162
Non-agency mortgage-backed securities		15,949		1,306		(717	)		16,538
Corporate debt securities		568,774		8,759		(3,264	)		574,269
	$	3,432,466	$	34,076	$	(16,290	)	$	3,450,252
December 31, 2013
U.S. Treasury bonds	$	66,400	$	669	$	(685	)	$	66,384
Municipal bonds		491,143		5,113		(10,291	)		485,965
Foreign bonds		221,298		1,836		(626	)		222,508
Governmental agency bonds		267,713		233		(5,401	)		262,545
Governmental agency mortgage-backed securities		1,426,489		2,074		(25,254	)		1,403,309
Non-agency mortgage-backed securities		19,658		1,167		(1,803	)		19,022
Corporate debt securities		355,893		7,279		(3,088	)		360,084
	$	2,848,594	$	18,371	$	(47,148	)	$	2,819,817

The cost and estimated fair value of investments in equity securities, all of which are classified as available-for-sale, are as follows:

(in thousands)
   Cost    Gross unrealized Estimated
fair value
      gains    losses
December 31, 2011

Preferred stocks
   $ 7,007       $ 678       $ (17 ) $ 7,668
Common stocks (1)
   224,880       3,793       (52,341 ) 176,332






   $ 231,887       $ 4,471       $ (52,358 ) $ 184,000






December 31, 2010

Preferred stocks
   $ 10,442       $ 1,150       $ (18 ) $ 11,574
Common stocks (1)
   269,512       4,458       (3,128 ) 270,842






   $ 279,954       $ 5,608       $ (3,146 ) $ 282,416

	Cost		Gross unrealized					Estimated fair value
(in thousands)	Cost		gains		losses			Estimated fair value
December 31, 2014
Preferred stocks	$	14,976	$	596	$	(47	)	$	15,525
Common stocks		378,938		16,680		(8,731	)		386,887
	$	393,914	$	17,276	$	(8,778	)	$	402,412
December 31, 2013
Preferred stocks	$	9,915	$	1,567	$	(397	)	$	11,085
Common stocks		324,184		25,137		(2,363	)		346,958
	$	334,099	$	26,704	$	(2,760	)	$	358,043

~~(1)~~

CoreLogic common stock with a cost basis of $167.6 million and $242.6 million at December 31, 2011 and 2010, respectively, and an estimated fair value of $115.5 million and $239.5 million, respectively, is included in common stocks. See Note 19 Transactions with CoreLogic/TFAC to the consolidated financial statements for additional discussion of the CoreLogic common stock.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company had the following ~~net~~ unrealized gains (losses) as of December 31, ~~2011, 2010~~2014, 2013 and ~~2009:~~2012:

										December 31,
	As of December 31, 2011			As of December 31, 2010			As of December 31, 2009			2014		2013			2012
	(in thousands)									(in thousands)
Debt securities for which an OTTI has been recognized	$	(10,937	)	$	(10,175	)	$	(15,690	)
Debt securities for which an other-than-temporary impairment has been recognized										$	604	$	(625	)	$	(4,435	)
Debt securities—all other		45,268			2,318			(6,422	)		17,182		(28,152	)		43,041
Equity securities		(47,887	)		2,462			2,879			8,498		23,944			6,750
										$	26,284	$	(4,833	)	$	45,356
	$	(13,556	)	$	(5,395	)	$	(19,233	)

Sales of debt and equity securities resulted in realized gains of ~~$12.4~~$34.1 million, ~~$15.2~~$17.2 million and ~~$19.5~~$70.1 million and realized losses of ~~$1.4~~$9.1 million, ~~$2.6~~$15.5 million and ~~$3.5~~$0.3 million for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The Company had the following gross unrealized losses as of December 31, ~~2011~~2014 and ~~December 31, 2010:~~2013:


	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
December 31, 2011
December 31, 2014
Debt securities:
U.S. Treasury bonds	$	—	$	—		$	—	$	—		$	—	$	—		$	8,122	$	(27	)	$	15,124	$	(154	)	$	23,246	$	(181	)
Municipal bonds		7,186		(43	)		1,896		(41	)		9,082		(84	)		137,755		(689	)		19,625		(318	)		157,380		(1,007	)
Foreign bonds		30,508		(206	)		690		—			31,198		(206	)		6,215		(8	)		—		—			6,215		(8	)
Governmental agency bonds		13,828		(1	)		4,150		—			17,978		(1	)		27,479		(88	)		127,936		(1,930	)		155,415		(2,018	)
Governmental agency mortgage-backed securities		280,114		(793	)		43,835		(132	)		323,949		(925	)		383,717		(1,612	)		300,918		(7,483	)		684,635		(9,095	)
Non-agency mortgage-backed securities		—		—			26,500		(11,933	)		26,500		(11,933	)		—		—			5,611		(717	)		5,611		(717	)
Corporate debt securities		40,682		(708	)		1,290		(30	)		41,972		(738	)		198,079		(3,151	)		9,683		(113	)		207,762		(3,264	)

Total debt securities		372,318		(1,751	)		78,361		(12,136	)		450,679		(13,887	)		761,367		(5,575	)		478,897		(10,715	)		1,240,264		(16,290	)
Equity securities		131,768		(52,358	)		—		—			131,768		(52,358	)		208,922		(8,587	)		2,340		(191	)		211,262		(8,778	)

Total	$	504,086	$	(54,109	)	$	78,361	$	(12,136	)	$	582,447	$	(66,245	)	$	970,289	$	(14,162	)	$	481,237	$	(10,906	)	$	1,451,526	$	(25,068	)

December 31, 2010
December 31, 2013
Debt securities:
U.S. Treasury bonds	$	13,555	$	(774	)	$	—	$	—		$	13,555	$	(774	)	$	37,492	$	(685	)	$	—	$	—		$	37,492	$	(685	)
Municipal bonds		149,921		(5,597	)		—		—			149,921		(5,597	)		230,180		(8,938	)		27,687		(1,353	)		257,867		(10,291	)
Foreign bonds		76,106		(399	)		13,587		(31	)		89,693		(430	)		56,579		(626	)		—		—			56,579		(626	)
Governmental agency bonds		160,240		(2,991	)		4,994		(6	)		165,234		(2,997	)		203,011		(5,375	)		131		(26	)		203,142		(5,401	)
Governmental agency mortgage-backed securities		177,417		(1,126	)		74,848		(203	)		252,265		(1,329	)		838,411		(20,970	)		124,425		(4,284	)		962,836		(25,254	)
Non-agency mortgage-backed securities		—		—			45,301		(16,516	)		45,301		(16,516	)		—		—			12,086		(1,803	)		12,086		(1,803	)
Corporate debt securities		72,481		(1,497	)		422		(3	)		72,903		(1,500	)		129,394		(2,422	)		12,500		(666	)		141,894		(3,088	)

Total debt securities		649,720		(12,384	)		139,152		(16,759	)		788,872		(29,143	)		1,495,067		(39,016	)		176,829		(8,132	)		1,671,896		(47,148	)
Equity securities		247,673		(3,128	)		220		(18	)		247,893		(3,146	)		85,112		(2,718	)		1,046		(42	)		86,158		(2,760	)

Total	$	897,393	$	(15,512	)	$	139,372	$	(16,777	)	$	1,036,765	$	(32,289	)	$	1,580,179	$	(41,734	)	$	177,875	$	(8,174	)	$	1,758,054	$	(49,908	)

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Substantially all securities in the Company’s non-agency mortgage-backed portfolio are senior tranches and all were investment grade at the time of purchase, however, all have subsequently been downgraded to below investment ~~grade since purchase.~~grade. The table below summarizes the composition of the Company’s non-agency mortgage-backed securities by collateral type, year of issuance and current credit ratings. Percentages are based on the amortized cost basis of the securities and credit ratings are based on Standard & Poor’s Ratings Group (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”) published ratings. If a security was rated differently by either rating agency, the lower of the two ratings was selected. All amounts and ratings are as of December 31, ~~2011.~~2014, by collateral type and year of issuance.

(in thousands, except percentages and number of
securities)
   Number
of
Securities    Amortized
Cost    Estimated
Fair
Value    A-Ratings
or
Higher BBB+
to BBB-
Ratings Non-
Investment
Grade/Not
Rated
Non-agency mortgage- backed securities:

Prime single family residential:

2007
   1       $ 5,623       $ 4,185       0.0 % 0.0 % 100.0 %
2006
   6       18,450       11,959       0.0 % 0.0 % 100.0 %
2005
   1       3,816       3,297       0.0 % 0.0 % 100.0 %
Alt-A single family residential:

2007
   2       14,200       11,193       0.0 % 0.0 % 100.0 %








   10       $ 42,089       $ 30,634       0.0 % 0.0 % 100.0 %

~~As of December 31, 2011, none of the non-agency mortgage-backed securities were on negative credit watch by S&P or Moody’s.~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

(in thousands, except number of securities)	Number of Securities		Amortized Cost		Estimated Fair Value
Non-agency mortgage- backed securities:
Prime single family residential:
2007		1	$	2,738	$	2,394
2006		3		7,433		7,377
2005		1		524		509
Alt-A single family residential:
2007		1		5,254		6,258
		6	$	15,949	$	16,538

The amortized cost and estimated fair value of debt securities at December 31, ~~2011,~~2014, by contractual maturities, are as follows:


(in thousands)	Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total		Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
U.S. Treasury bonds
Amortized cost	$	52,079	$	19,175	$	607	$	134	$	71,995	$	4,909	$	40,264	$	17,032	$	1,990	$	64,195
Estimated fair value	$	52,520	$	20,795	$	720	$	196	$	74,231	$	4,969	$	40,312	$	17,370	$	2,331	$	64,982
Municipal bonds
Amortized cost	$	1,590	$	93,667	$	133,227	$	101,451	$	329,935	$	20,148	$	262,901	$	181,812	$	112,842	$	577,703
Estimated fair value	$	1,623	$	97,004	$	143,304	$	107,192	$	349,123	$	20,239	$	264,952	$	186,168	$	116,318	$	587,677
Foreign bonds
Amortized cost	$	38,538	$	163,206	$	10,456	$	—	$	212,200	$	46,403	$	131,652	$	13,473	$	3,221	$	194,749
Estimated fair value	$	38,979	$	165,546	$	10,495	$	—	$	215,020	$	46,585	$	133,103	$	13,707	$	3,355	$	196,750
Governmental agency bonds
Amortized cost	$	11,533	$	93,611	$	73,037	$	17,603	$	195,784	$	2,279	$	171,686	$	12,402	$	11,963	$	198,330
Estimated fair value	$	11,673	$	94,325	$	73,478	$	18,277	$	197,753	$	2,284	$	169,796	$	12,762	$	13,032	$	197,874
Corporate debt securities
Amortized cost	$	6,679	$	106,261	$	115,822	$	20,159	$	248,921	$	18,503	$	239,699	$	262,743	$	47,829	$	568,774
Estimated fair value	$	6,745	$	108,548	$	121,865	$	21,445	$	258,603	$	18,640	$	242,236	$	263,623	$	49,770	$	574,269

Total debt securities excluding mortgage-backed securities
Amortized cost	$	110,419	$	475,920	$	333,149	$	139,347	$	1,058,835	$	92,242	$	846,202	$	487,462	$	177,845	$	1,603,751
Estimated fair value	$	111,540	$	486,218	$	349,862	$	147,110	$	1,094,730	$	92,717	$	850,399	$	493,630	$	184,806	$	1,621,552

Total mortgage-backed securities
Amortized cost									$	1,108,745									$	1,828,715
Estimated fair value									$	1,107,181									$	1,828,700
Total debt securities
Amortized cost									$	2,167,580									$	3,432,466
Estimated fair value									$	2,201,911									$	3,450,252

~~Other-than-temporary impairment—debt~~Mortgage-backed securities, which include contractual terms to maturity, are not categorized by contractual maturity because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Although dislocations in the capital and credit markets have largely recovered, there continues to be volatility and disruption concerning certain vintages of non-agency mortgage-backed securities. The primary factors negatively impacting certain vintages of non-agency mortgage-backed securities include stringent borrowing guidelines that result in the inability of borrowers to refinance, high unemployment, continued declines in real estate values, uncertainty regarding the timing and effectiveness of governmental solutions and a general slowdown in economic activity. The Company determines if a non-agency mortgage-backed security in a loss position is other-than-temporarily impaired by comparing the present value of the cash flows expected to be collected from the security to its amortized cost basis. If the present value of the cash flows expected to be collected exceed the amortized cost of the security, the Company concludes that the security is not other-than-temporarily impaired. The Company performs this analysis on all non-agency mortgage-backed securities in its portfolio that are in an unrealized loss position. The methodology and key assumptions used in estimating the present value of cash flows expected to be collected are described below. For the securities that were determined

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~not~~NOTE 4. Financing Receivables:

During the fourth quarter of 2014, the Company completed its multi-year process of winding-down the operations of its industrial bank, First Security Business Bank, which included the sale of the bank’s loan portfolio and transfer of its customer deposits to ~~be other-than-temporarily impaired~~a third party bank. The Company received proceeds from the sale of $42.3 million, net of $8.1 million related to customer deposits, and recorded a gain of $0.5 million. Customer deposits were transferred at par value. Loans receivable, net totaled $73.8 million at December 31, ~~2011, the present value of the cash flows expected to be collected exceeded the amortized cost of each security.~~2013.

If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is other-than-temporarily impaired and it is written down to fair value with all losses recognized in earnings. As of December 31, 2011, the Company does not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell debt securities before recovery of their amortized cost basis.

If the Company does not expect to recover the amortized cost basis of a debt security with declines in fair value (even if the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt security before the recovery of its remaining amortized cost basis), the losses the Company considers to be the credit portion of the other-than-temporary impairment loss (“credit loss”) is recognized in earnings and the non-credit portion is recognized in other comprehensive income. The credit loss is the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted at the rate implicit in the security immediately prior to the recognition of the other-than-temporary impairment.

Expected future cash flows for debt securities are based on qualitative and quantitative factors specific to each security, including the probability of default and the estimated timing and amount of recovery. The detailed inputs used to project expected future cash flows may be different depending on the nature of the individual debt security. Specifically, the cash flows expected to be collected for each non-agency mortgage-backed security are estimated by analyzing loan-level detail to estimate future cash flows from the underlying assets, which are then applied to the security based on the underlying contractual provisions of the securitization trust that issued the security (e.g. subordination levels, remaining payment terms, etc.). The Company uses third-party software to determine how the underlying collateral cash flows will be distributed to each security issued from the securitization trust. The primary assumptions used in estimating future collateral cash flows are prepayment speeds, default rates and loss severity. In developing these assumptions, the Company considers the financial condition of the borrower, loan to value ratio, loan type and geographical location of the underlying property. The Company utilizes publicly available information related to specific assets, generally available market data such as forward interest rate curves and CoreLogic’s securities, loans and property data and market analytics tools.

~~The table below summarizes the primary assumptions used at December 31, 2011 in estimating the cash flows expected to be collected for these securities.~~


	~~Weighted average~~			~~Range~~
~~Prepayment speeds~~		~~8.0~~	%		~~6.4% – 10.0%~~
~~Default rates~~		~~5.1~~	%		~~1.8% – 10.5%~~
~~Loss severity~~		~~30.4~~	%		~~7.9% – 39.7%~~

As a result of the Company’s security-level review, it recognized total other-than-temporary impairments of $12.7, million, $8.5 million and $45.0 million on its non-agency mortgage-backed securities for the years ended December 31, 2011, 2010 and 2009, respectively, of which $9.1 million, $6.3 million and $18.8 million of other-than-temporary impairment losses were considered to be credit related and were recognized in earnings for the years ended December 31, 2011, 2010 and 2009, respectively, while $3.7 million, $2.2 million and $26.2 million of other-than-temporary impairment losses were considered to be related to factors other than credit and were

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

therefore recognized in other comprehensive income for the years ended December 31, 2011, 2010 and 2009, respectively. The amounts remaining in other comprehensive income for the years ended December 31, 2011, 2010 and 2009 should not be recorded in earnings, because the losses were not considered to be credit related based on the Company’s other-than-temporary impairment analysis as discussed above.

It is possible that the Company could recognize additional other-than-temporary impairment losses on some securities it owns at December 31, 2011 if future events or information cause it to determine that a decline in value is other- than-temporary.

   Year Ended December 31,
   2011    2010    2009
   (in thousands)
Credit loss on debt securities held at beginning of period
   $ 25,108       $ 18,807       $ —
Addition to credit loss for which an other-than-temporary impairment was previously recognized
   7,667       6,169       —
Addition to credit loss for which an other-than-temporary impairment was not previously recognized
   1,401       132       18,807






Credit loss on debt securities held as of December 31
   $ 34,176       $ 25,108       $ 18,807

~~Other-than-temporary impairment—equity securities~~

When, in the Company’s opinion, a decline in the fair value of an equity security, including common and preferred stock, is considered to be other-than-temporary, such equity security is written down to its fair value. When assessing if a decline in value is other-than-temporary, the factors considered include the length of time and extent to which fair value has been below cost, the probability that the Company will be unable to collect all amounts due under the contractual terms of the security, the seniority of the securities, issuer-specific news and other developments, the financial condition and prospects of the issuer (including credit ratings), macro-economic changes (including the outlook for industry sectors, which includes government policy initiatives) and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

When an equity security has been in an unrealized loss position for greater than twelve months, the Company’s review of the security includes the above noted factors as well as the evidence, if any exists, to support that the security will recover its value in the foreseeable future, typically within the next twelve months. If objective, substantial evidence does not indicate a likely recovery during that timeframe, the Company’s policy is that such losses are considered other-than-temporary and therefore an impairment loss is recorded. During the year ended December 31, 2011, the Company did not record material other-than-temporary impairment charges related to its equity securities. The Company recorded other-than-temporary impairment of $1.7 million during the year ended December 31, 2010 relating to the Company’s preferred equity securities as a component of net other-than-temporary impairment losses recognized in earnings. During the year ended December 31, 2009, the Company concluded that objective substantive evidence was not available on 51 common equity securities and 15 preferred equity securities that had been in a loss position for greater than twelve months. Accordingly, the

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Company recorded an other-than-temporary impairment charge of $16.0 million and $5.1 million, relating to its common and preferred equity securities, respectively, as a component of net other-than-temporary impairment losses recognized in earnings. The impairment loss includes a $2.9 million other-than-temporary impairment charge upon the Company’s election to convert its preferred stock in Citigroup Inc. into common stock of that entity under the terms of Citigroup’s publicly announced exchange offer.

At December 31, 2011, the Company owned 8.9 million shares of CoreLogic common stock with a cost basis of $167.6 million and an estimated fair value of $115.5 million. While the Company’s investment in CoreLogic common stock has not been in an unrealized loss position for greater than twelve months, the Company assessed its investment in CoreLogic for other-than-temporary impairment due to the significant amount of shares owned. In August 2011, CoreLogic announced that its board of directors had formed a committee of independent directors to explore options aimed at enhancing shareholder value including cost savings initiatives, an evaluation of CoreLogic’s capital structure, repurchases of debt and common stock, the disposition of business lines, the sale or business combination of CoreLogic and other alternatives. CoreLogic’s board of directors also announced that it retained a financial adviser to assist the committee in its evaluation. Based on the factors considered, the Company’s opinion is the decline in the fair value of CoreLogic’s common stock is not other-than-temporary; therefore, the unrealized loss of $52.1 million was recorded in accumulated other comprehensive loss on the Company’s consolidated balance sheet. The factors considered by the Company include, but are not limited to, (i) the fair value of the common stock has been below cost for less than twelve months, (ii) the Company has the ability and intent to hold the common stock for a period of time sufficient to allow for recovery, (iii) the process of exploring options aimed at enhancing shareholder value in which CoreLogic is engaged, and (iv) in January 2012, CoreLogic issued updated 2011 guidance and full year 2012 guidance containing information that the Company assessed as positive. It is possible that the Company could recognize an other-than-temporary impairment related to its CoreLogic common stock if future events or information cause it to determine that the decline in value is other-than-temporary. The Company will continue to closely monitor and regularly review its investment in CoreLogic common stock.

~~Fair value measurement~~

The Company classifies the fair value of its debt and equity securities using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy level assigned to each security in the Company’s available-for-sale portfolio is based on management’s assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three hierarchy levels are defined as follows:

~~Level 1—Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of equity securities are classified as Level 1.~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. The Level 3 category includes non-agency mortgage-backed securities which are currently not actively traded.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement. The valuation techniques and inputs used to estimate the fair value of the Company’s debt and equity securities are summarized as follows:

~~Debt Securities~~

The fair value of debt securities was based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established independent broker-dealers. The independent pricing service monitors market indicators, industry and economic events, and for broker-quoted only securities, obtains quotes from market makers or broker-dealers that it recognizes to be market participants. The pricing service utilizes the market approach in determining the fair value of the debt securities held by the Company. Additionally, the Company obtains an understanding of the valuation models and assumptions utilized by the service and has controls in place to determine that the values provided represent fair value. The Company’s validation procedures include comparing prices received from the pricing service to quotes received from other third party sources for securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value measurements provided by the pricing service.

Typical inputs and assumptions to pricing models used to value the Company’s U.S. Treasury bonds, governmental agency bonds, governmental agency mortgage-backed securities, municipal bonds, foreign bonds and corporate debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds. The fair value of non-agency mortgage-backed securities was obtained from the independent pricing service referenced above and subject to the Company’s validation procedures discussed above. However, due to the fact that these securities were not actively traded, there was less observable inputs available requiring the pricing service to use more judgment in determining the fair value of the securities, therefore the Company classified non-agency mortgage-backed securities as Level 3.

~~Equity Securities~~

~~The fair value of equity securities, including preferred and common stocks, was based on quoted market prices for identical assets that are readily and regularly available in an active market.~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The following table presents the Company’s available-for-sale investments measured at fair value on a recurring basis as of December 31, 2011 and December 31, 2010, classified using the three-level hierarchy for fair value measurements:

(in thousands)
   Estimated fair value as
of December 31, 2011    Level 1    Level 2    Level 3
Debt securities:

U.S. Treasury bonds
   $ 74,231       $ —         $ 74,231       $ —
Municipal bonds
   349,123       —         349,123       —
Foreign bonds
   215,020       —         215,020       —
Governmental agency bonds
   197,753       —         197,753       —
Governmental agency mortgage- backed securities
   1,076,547       —         1,076,547       —
Non-agency mortgage-backed securities
   30,634       —         —         30,634
Corporate debt securities
   258,603       —         258,603       —








   2,201,911       —         2,171,277       30,634








Equity securities

Preferred stocks
   7,668       7,668       —         —
Common stocks
   176,332       176,332       —         —








   184,000       184,000       —         —








   $ 2,385,911       $ 184,000       $ 2,171,277       $ 30,634

(in thousands)
   Estimated fair value
as
of December 31, 2010    Level 1    Level 2    Level 3
Debt securities:

U.S. Treasury bonds
   $ 97,859       $ —         $ 97,859       $ —
Municipal bonds
   277,799       —         277,799       —
Foreign bonds
   185,942       —         185,942       —
Governmental agency bonds
   240,161       —         240,161       —
Governmental agency mortgage- backed securities
   1,045,497       —         1,045,497       —
Non-agency mortgage-backed securities
   47,534       —         —         47,534
Corporate debt securities
   213,192       —         213,192       —








   2,107,984       —         2,060,450       47,534








Equity securities

Preferred stocks
   11,574       11,574       —         —
Common stocks
   270,842       270,842       —         —








   282,416       282,416       —         —








   $ 2,390,400       $ 282,416       $ 2,060,450       $ 47,534

The Company did not have any transfers in and out of Level 1 and Level 2 measurements during the years ended December 31, 2011 and 2010. The Company’s policy is to recognize transfers between levels in the fair value hierarchy at the end of the reporting period.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~The following table presents a summary of the changes in fair value of Level 3 available-for-sale investments for the years ended December 31, 2011 and 2010:~~

(in thousands)
   Year Ended
December 31,
2011 Year Ended
December 31,
2010
Fair value at beginning of year
   $ 47,534    $ 59,201
Total gains/(losses) (realized and unrealized):

Included in earnings:

Realized losses
   (191 ) (970 )
Net other-than-temporary impairment losses recognized in earnings
   (9,068 ) (6,301 )
Included in other comprehensive loss
   4,784    19,014
Settlements
   (9,945 ) (20,820 )
Sales
   (2,480 ) (2,590 )
Transfers into Level 3
   —      —
Transfers out of Level 3
   —      —


Fair value as of December 31
   $ 30,634    $ 47,534


Unrealized gains (losses) included in earnings for the period relating to Level 3 available-for-sale investments that were still held at the end of the period:

Net other-than-temporary impairment losses recognized in earnings
   $ (9,068 ) $ (6,301 )

~~The Company did not purchase any non-agency mortgage-backed securities during the years ended December 31, 2011 and 2010.~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~NOTE 4. Financing Receivables:~~

~~Financing receivables are summarized as follows:~~

   December 31,
   2011 2010
   (in thousands)
Loans receivable, net:

Real estate–mortgage

Multi-family residential
   $ 12,028    $ 12,203
Commercial
   130,724    152,280
Other
   1,403    1,120


   144,155    165,603
Allowance for loan losses
   (4,171 ) (3,271 )
Participations sold
   (861 ) (977 )
Deferred loan fees, net
   68    171


Loans receivable, net
   139,191    161,526


Other long-term investments:

Notes receivable—secured
   14,776    17,244
Notes receivable—unsecured
   4,207    9,014
Loss reserve
   (3,402 ) (5,095 )


Notes receivable, net
   15,581    21,163


Notes receivable from CoreLogic
   —      18,787


Total financing receivables, net
   $ 154,772    $ 201,476

Real estate loans are collateralized by properties located primarily in Southern California. The average yield on the loan portfolio was 6.51% and 6.69% for the years ended December 31, 2011 and 2010, respectively. Average yields are affected by prepayment penalties recorded as income, prepayment speeds, loan fees amortized to income and the market interest rates.

	December 31,
Notes receivable:	2014			2013
	(in thousands)

Secured		5,810			10,533
Unsecured		2,761			2,593
		8,571			13,126
Loss reserve		(2,441	)		(2,584	)
Notes receivable, net	$	6,130		$	10,542

Aging analysis of ~~loans and~~ notes receivable at December 31, ~~2011,~~2014 and 2013, is as follows:

   Total    Current    30-59 days
past due    60-89 days
past due    90 days or
more
past due    Nonaccrual
status
   (in thousands)
Loans Receivable:

Multi-family residential
   $ 12,028       $ 12,028       $ —         $ —         $ —         $ —
Commercial
   130,724       123,736       1,918    170    —         4,900
Other
   1,403       1,403       —         —         —         —












   $ 144,155       $ 137,167       $ 1,918    $ 170    $ —         $ 4,900












Notes Receivable:

Secured
   $ 14,776       $ 10,712       $ —         $ —         $ —         $ 4,064
Unsecured
   4,207       108       —         —         —         4,099












   $ 18,983       $ 10,820       $ —         $ —         $ —         $ 8,163

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Aging analysis of loans and notes receivables at December 31, 2010, is as follows:~~

   Total    Current    30-59 days
past due    60-89 days
past due    90 days or
more
past due    Nonaccrual
status
   (in thousands)
Loans Receivable:

Multi-family residential
   $ 12,203       $ 12,203       $ —         $ —         $ —         $ —
Commercial
   152,280       147,441       2,222    176    —         2,441
Other
   1,120       1,120       —         —         —         —












   $ 165,603       $ 160,764       $ 2,222    $ 176    $ —         $ 2,441












Notes Receivable:

Secured
   $ 17,244       $ 11,006       $ —      $ —         $ —         $ 6,238
Unsecured
   9,014       2,278       —         —         —         6,736












   $ 26,258       $ 13,284       $ —         $ —         $ —         $ 12,974

The Company performs an analysis of its allowance for loan losses on a quarterly basis. In determining the allowance, the Company considers various factors, such as changes in lending policies and procedures, changes in the nature and volume of the portfolio, changes in the trend of the volume and severity of past due and classified loans, changes to the concentration of credit, as well as changes in legal and regulatory requirements. The allowance for loan losses is maintained at a level that is considered appropriate by the Company to provide for known risks in its portfolio.

Loss reserves are established for notes receivable based upon an estimate of probable losses for the individual notes. A loss reserve is established on an individual note when it is deemed probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the note. The loss reserve is based upon the Company’s assessment of the borrower’s overall financial condition, resources and payment record; and, if appropriate, the realizable value of any collateral. These estimates consider all available evidence including the expected future cash flows, estimated fair value of collateral on secured notes, general economic conditions and trends, and other relevant factors, as appropriate. Notes are placed on non-accrual status when management determines that the collectibility of contractual amounts is not reasonably assured.

	Total		Current		30-59 days past due		60-89 days past due		90 days or more past due		Non-accrual status
	(in thousands)
December 31, 2014
Notes Receivable:
Secured	$	5,810	$	4,929	$	28	$	—	$	43	$	810
Unsecured		2,761		1,121		7		—		—		1,633
	$	8,571	$	6,050	$	35	$	—	$	43	$	2,443
December 31, 2013
Notes Receivable:
Secured	$	10,533	$	5,784	$	3,668	$	—	$	231	$	850
Unsecured		2,593		771		—		—		—		1,822
	$	13,126	$	6,555	$	3,668	$	—	$	231	$	2,672

The aggregate annual maturities for ~~loans receivable and~~ notes receivable at December 31, ~~2011, are~~2014, is as follows:

Year
   Loans
Receivable    Notes
Receivable
   (in thousands)
2012
   $ 2,437       $ 2,767
2013
   1,284       1,561
2014
   2,499       4,359
2015
   9,363       968
2016
   6,033       1,382
2017 and thereafter
   122,539       7,946




   $ 144,155       $ 18,983

Year		Notes Receivable
	(in thousands)
2015		$	2,035
2016			1,509
2017			719
2018			517
2019			2,603
2020 and thereafter			1,188
		$	8,571

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 5. Property and Equipment:

Property and equipment consists of the following:


	December 31,						December 31,
	2011			2010			2014			2013
	(in thousands)						(in thousands)
Land	$	32,023		$	31,843		$	29,700		$	29,816
Buildings		289,999			297,966			270,689			277,131
Furniture and equipment		165,655			190,834			186,237			182,912
Capitalized software		338,333			307,454			466,548			402,713
								953,174			892,572
		826,010			828,097
Accumulated depreciation and amortization		(488,432	)		(482,226	)		(557,887	)		(531,224	)
							$	395,287		$	361,348
	$	337,578		$	345,871

NOTE 6. Goodwill:

A ~~reconciliation~~summary of the changes in the carrying amount of goodwill, by operating segment, for the years ended December 31, ~~2011~~2014 and ~~2010,~~2013, is as follows:

   Title
Insurance
and Services    Specialty
Insurance    Total
   (in thousands)
Balance as of December 31, 2009
   $ 754,221       $ 46,765       $ 800,986
Acquisitions
   8,631       —         8,631
Other net adjustments
   2,414       —         2,414






Balance as of December 31, 2010
   765,266       46,765       812,031
Acquisitions
   2,678       —         2,678
Other net adjustments
   3,711       —         3,711






Balance as of December 31, 2011
   $ 771,655       $ 46,765       $ 818,420

	Title Insurance and Services			Specialty Insurance		Total
	(in thousands)
Balance as of December 31, 2012	$	799,092		$	46,765	$	845,857
Acquisitions		4,456			—		4,456
Foreign currency translation		(4,287	)		—		(4,287	)
Balance as of December 31, 2013		799,261			46,765		846,026
Acquisitions		121,252			—		121,252
Foreign currency translation		(5,554	)		—		(5,554	)
Other adjustments		(1,779	)		—		(1,779	)
Balance as of December 31, 2014	$	913,180		$	46,765	$	959,945

~~The activity~~For further discussion about the Company’s acquisitions in ~~the above reconciliation for other net adjustments primarily relates to foreign currency exchange and post acquisition adjustments.~~

2014 see Note 21 Business Combinations.

The Company’s ~~four reporting units for purposes of testing impairment are title insurance, home warranty, property and casualty insurance and trust and other services.~~

~~The Company’s policy is to perform an annual~~ goodwill impairment ~~test~~assessments for ~~each reporting unit in the fourth quarter. Although recent market conditions~~2014, 2013 and economic events have had an overall negative impact on the Company’s operations and related financial results, impairment analyses were not performed at any other time in the year as no triggering events requiring such an analysis occurred.

~~The Company’s 2011, 2010 and 2009 evaluations~~2012 did not indicate impairment into any of its reporting units. There is no accumulated impairment for goodwill as the Company has never recognized ~~any~~ impairment to any of its reporting units. ~~Due to significant volatility in the current markets, the Company’s operations may be negatively impacted in the future to the extent that exposure to impairment losses may be increased.~~

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 7. Other Intangible Assets:

Other intangible assets consist of the following:


	December 31,						December 31,
	2011			2010			2014			2013
	(in thousands)						(in thousands)
Finite-lived intangible assets:
Customer lists	$	69,763		$	72,854
Covenants not to compete		29,441			30,811
Customer relationships							$	94,850		$	77,382
Noncompete agreements								27,286			26,928
Trademarks		9,551			10,304			11,241			10,026
Patents		2,840			2,840			2,840			2,840
								136,217			117,176
		111,595			116,809
Accumulated amortization		(69,397	)		(63,597	)		(97,282	)		(88,624	)

		42,198			53,212			38,935			28,552
Indefinite-lived intangible assets:
Licenses		17,796			16,838			16,877			17,795
							$	55,812		$	46,347
	$	59,994		$	70,050

Amortization expense for finite-lived intangible assets was ~~$13.9~~$12.6 million ~~$14.5 million~~for the year ended December 31, 2014 and ~~$14.1~~$12.0 million for the years ended December 31, ~~2011, 2010~~2013 and ~~2009, respectively.~~

2012.

Estimated amortization expense for finite-lived intangible assets ~~anticipated~~ for the next five years is as follows:


Year	(in thousands)			(in thousands)
2012	$	11,330
2013	$	10,616
2014	$	6,237
2015	$	3,321	2015	$	8,886
2016	$	2,698	2016	$	8,423
2017			2017	$	6,799
2018			2018	$	4,462
2019			2019	$	3,690

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 8. Deposits:

~~Escrow, passbook and investment certificate~~Deposit accounts are summarized as follows:

   December 31,
   2011 2010
   (in thousands, except
percentages)
Escrow accounts:

Interest bearing
   $ 744,917    $ 736,664
Non-interest bearing
   277,707    263,528


   1,022,624    1,000,192


Passbook accounts
   26,840    437,137


Certificate accounts:

Less than one year
   23,239    22,736
One to five years
   20,533    22,492


   43,772    45,228


   $ 1,093,236    $ 1,482,557


Annualized interest rates:

Escrow accounts
   0.25 % 0.38 %


Passbook accounts
   0.65 % 0.31 %


Certificate accounts
   1.81 % 2.39 %

	December 31,
	2014			2013
	(in thousands, except percentages)
Escrow accounts:
Interest bearing	$	1,962,351		$	1,376,921
Non-interest bearing		266,281			176,964
		2,228,632			1,553,885
Savings accounts (1)		—			22,015
Certificate accounts (1)		—			26,596
Business checking and other deposits (2)		104,082			90,436
	$	2,332,714		$	1,692,932
Weighted average interest rate:
Escrow accounts		0.11	%		0.13	%

(1)

(2)	Business checking and other deposits primarily reflect non-interest bearing accounts.

NOTE 9. Reserve for Known and Incurred But Not Reported Claims:

Activity in the reserve for known and incurred but not reported claims is summarized as follows:


	December 31,								December 31,
	2011			2010		2009			2014		2013			2012
	(in thousands)								(in thousands)
Balance at beginning of year	$	1,108,238		$	1,227,757	$	1,326,282		$	1,018,365	$	976,462		$	1,014,676
Provision related to:
Current year		308,868			289,220		354,149			385,155		380,723			335,097
Prior years		111,268			31,654		(7,435	)		64,868		149,633			62,620
										450,023		530,356			397,717
		420,136			320,874		346,714

Payments, net of recoveries, related to:
Current year		149,004			136,445		137,300			196,656		182,653			160,138
Prior years		354,430			319,780		314,887			273,094		296,657			285,848
										469,750		479,310			445,986
		503,434			456,225		452,187

Other		(10,264	)		15,832		6,948			13,142		(9,143	)		10,055

Balance at end of year	$	1,014,676		$	1,108,238	$	1,227,757		$	1,011,780	$	1,018,365		$	976,462

“Other” primarily represents reclassifications to the reserve for foreign currency gains/losses and assets acquired in connection with claim settlements. Claims activity associated with reinsurance is not material and,

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

therefore, not presented separately. Current year payments include ~~$135.1~~$174.4 million, ~~$123.6~~$167.3 million and ~~$125.2~~$144.1 million in ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively, that primarily relate to the Company’s specialty insurance segment. Prior year payments include ~~$20.5~~$23.2 million, ~~$18.6~~$16.0 million and ~~$20.4~~$16.7 million in ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively, that relate to the Company’s specialty insurance segment.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The provision for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, was ~~9.5%~~7.0%, ~~6.2%~~8.8% and ~~6.8%~~6.9% for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively.

The current year rate of ~~9.5% reflected~~7.0% reflects an ultimate loss rate of ~~5.6%~~5.3% for the current policy year and ~~included~~ a ~~$45.3 million reserve strengthening adjustment related to a guaranteed valuation product offered in Canada that experienced a meaningful~~net increase in ~~claims activity during~~ the ~~first quarter of 2011, a $32.2 million charge in connection with the settlement of Bank of America’s lawsuit against the Company and $34.2 million in unfavorable development~~loss reserve estimates for ~~certain~~ prior policy years ~~primarily 2007. For additional discussion regarding the Bank~~ of ~~America lawsuit see Note 21 Litigation and Regulatory Contingencies to the consolidated financial statements.~~$62.2 million. The ~~prior year rate of 6.2% reflected an expected ultimate~~increase in loss ~~rate of 4.9% for policy year 2010, with a net upward adjustment to the~~ reserve estimates for prior policy ~~years. The changes in estimates resulted~~years reflected claims development above expected levels during 2014, primarily from ~~higher than expected~~domestic commercial policies. The reserve strengthening associated with domestic commercial policies was $41.4 million and was primarily attributable to several large commercial claims, ~~emergence experienced during 2010 for policies issued prior~~net of anticipated recoveries, mainly from mechanics liens, and primarily related to ~~2009,~~policy years 2003, 2005 and ~~lower than expected claims emergence experienced during 2010 for~~2007. Other factors, including a large international commercial claim from policy year ~~2009. The rate of 6.8% in 2009 reflected an expected ultimate loss rate of 7.0% for policy year 2009, with a minor downward adjustment~~2004, also contributed to the net increase in the loss reserve estimates for ~~certain~~ prior policy years.

2009.

continues to create an increased potential for actual claims experience to vary

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

significantly from projections, in either direction, which would directly affect the claims provision. If actual claims vary significantly from expected, reserves may be adjusted to reflect updated estimates of future claims.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

losses, particularly macroeconomic factors.

A summary of the Company’s loss reserves ~~broken down into its components of known title claims, incurred but not reported claims and non-title claims,~~is as follows:


(in thousands except percentages)	December 31, 2011				December 31, 2010
(in thousands, except percentages)										December 31, 2014				December 31, 2013
Known title claims	$	162,019	15.9	%	$	192,268	17.4	%	Known title claims	$	165,330	16.3	%	$	135,478	13.3	%
IBNR		816,603	80.5	%		875,627	79.0	%

Incurred but not reported claims									Incurred but not reported claims		802,069	79.3	%		840,104	82.5	%
Total title claims		978,622	96.4	%		1,067,895	96.4	%	Total title claims		967,399	95.6	%		975,582	95.8	%
Non-title claims		36,054	3.6	%		40,343	3.6	%	Non-title claims		44,381	4.4	%		42,783	4.2	%

Total loss reserves	$	1,014,676	100.0	%	$	1,108,238	100.0	%	Total loss reserves	$	1,011,780	100.0	%	$	1,018,365	100.0	%

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 10. Notes and Contracts Payable:

   December 31,
   2011    2010
   (in thousands)
Line of credit borrowings due June 1, 2013, weighted-average interest rate of 3.06% at December 31, 2011 and 2010
   $ 200,000       $ 200,000
Trust deed notes with maturities through 2032, collateralized by land and buildings with a net book value of $54,583 and $56,021 at December 31, 2011 and 2010, respectively, weighted-average interest rate of 5.43% and 5.45%, at December 31, 2011 and 2010, respectively
   44,802       47,931
Other notes and contracts payable with maturities through 2020, weighted-average interest rate of 2.02% and 4.39% at December 31, 2011 and 2010, respectively
   55,173       45,886




   $ 299,975       $ 293,817

	December 31,
	2014		2013
	(in thousands, except percentages)
4.60% senior unsecured notes due November 15, 2024, net of unamortized discount of $74 at December 31, 2014, effective interest rate of 4.60%	$	299,926	$	—
4.30% senior unsecured notes due February 1, 2023, net of unamortized discount of $760 and $837 at December 31, 2014 and 2013, respectively, effective interest rate of 4.35%		249,240		249,163
Trust deed notes with maturities through 2032, collateralized by land and buildings with a net book value of $52,414 and $55,206 at December 31, 2014 and 2013, respectively, weighted-average interest rate of 5.39% and 5.42%, at December 31, 2014 and 2013, respectively		34,420		38,151
Other notes and contracts payable with maturities through 2020, weighted-average interest rate of 5.30% and 2.96% at December 31, 2014 and 2013, respectively		3,751		22,971
	$	587,337	$	310,285

The weighted-average interest rate for the Company’s notes and contracts payable was ~~3.23%~~4.52% and ~~3.66%~~4.34% at December 31, ~~2011~~2014 and ~~2010,~~2013, respectively.

On ~~April 12, 2010,~~November 10, 2014, the Company ~~entered into a~~issued $300.0 million of 4.60% 10-year senior unsecured notes due in 2024. The notes were priced at 99.975% to yield 4.603%. Interest is due semi-annually on May 15 and November 15, beginning May 15, 2015. The Company intends to use the net proceeds for general corporate purposes. In anticipation of the receipt of the net proceeds from this offering, the Company repaid all borrowings outstanding under its credit facility, increasing the available capacity thereunder to the full $700.0 million size of the facility.

In May 2014, the Company amended and restated its credit agreement with JPMorgan Chase Bank, N.A. ~~(“JPMorgan”)~~ in its capacity as administrative agent and ~~a syndicate of lenders.~~

the lenders party thereto. The credit agreement is comprised of a ~~$400.0~~$700.0 million revolving credit facility. ~~The~~Unless terminated earlier, the revolving loan commitments under the credit agreement will terminate on ~~the third anniversary~~May 14, 2019. The obligations of the ~~date of closing, or June 1, 2013. On June 1, 2010, the~~ Company ~~borrowed $200.0 million~~ under the ~~facility and transferred such funds to CoreLogic, as previously contemplated~~credit agreement are neither secured nor guaranteed. The agreement replaced the Company’s $600.0 million senior unsecured credit agreement that had been in ~~connection with~~place since November 14, 2012. Proceeds under the ~~Separation. Proceeds~~credit agreement may ~~also~~ be used for general corporate purposes. At December 31, ~~2011 and 2010,~~2014, the ~~interest rate associated with the $200.0 million borrowed~~Company had no outstanding borrowings under the ~~facility is 3.06%. See Note 19 Transactions with CoreLogic/TFAC~~facility.

The credit agreement includes an expansion option that permits the Company, subject to satisfaction of certain conditions, to increase the revolving commitments and/or add term loan tranches (“Incremental Term Loans”) in an aggregate amount not to exceed $150.0 million. Incremental Term Loans, if made, may not mature prior to the ~~consolidated financial statements for additional discussion of the $200.0 million transferred to CoreLogic.~~

The Company’s obligations under the credit agreement are guaranteed by certain of the Company’s subsidiaries (the “Guarantors”). To secure the obligations of the Company and the Guarantors (collectively, the “Loan Parties”) under the credit agreement, the Loan Parties pledged all of the equity interests they own in each Data Trace and Data Tree company and a 9% equity interest in FATICO.

If at any time the rating by Moody’s or S&P of the senior, unsecured, long-term indebtedness for borrowed money of the Company that is not guaranteed by any other person or subject to any other credit enhancement is rated lower than Baa3 or BBB-, respectively, or is not rated by either such rating agency, then the loan commitments are subject to mandatory reduction from (a) 50% of the net proceeds of certain equity issuances by any Loan Party, (b) 50% of the net proceeds of certain debt incurred or issued by any Loan Party, (c) 25% of the net proceeds received by any Loan Party from the disposition of CoreLogic stock received in connection with the Separation and (d) the net proceeds received by any Loan Party from certain dispositions of assets,revolving commitment termination date, provided that ~~the commitment reductions described above are only required~~amortization may occur prior to the extent necessary to reduce the total loan commitments to $200.0 million. The Company is only required to prepay loans to the extent that, after giving effect to any mandatory commitment reduction, the aggregate principal amount of all outstanding loans exceeds the remaining total loan commitments.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

such date.

At the Company’s election, borrowings of revolving loans under the credit agreement bear interest at (a) the Alternate Base Rate plus the ~~Applicable Rate~~applicable spread or (b) the Adjusted LIBOR rate plus the ~~Applicable Rate~~applicable spread (in each case as defined in the agreement). The Company may select interest periods of one, two, three or six months or (if agreed to by all lenders) such other number of months for Eurodollar borrowings of loans. The ~~Applicable Rate~~applicable spread varies depending upon the debt rating assigned by Moody’s Investor Service, Inc. and/or ~~S&P to the credit agreement, or if no such rating is in effect, the Index Debt Rating.~~Standard & Poor’s Rating Services. The minimum ~~Applicable Rate~~applicable spread for Alternate Base Rate borrowings is ~~1.50%~~0.625% and the maximum is ~~2.25%~~1.00%. The minimum ~~Applicable Rate~~applicable spread for Adjusted LIBOR rate borrowings is ~~2.50%~~1.625% and the maximum is ~~3.25%~~2.00%.

The rate of interest on Incremental Term Loans will be established at or about the time such loans are made and may differ from the rate of interest on revolving loans.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the loans will automatically accelerate. AtAs of December 31, ~~2011,~~2014, the Company iswas in compliance with the ~~debt~~financial covenants under the credit agreement.

The aggregate annual maturities for notes and contracts payable in each of the five years after December 31, ~~2011,~~2014, are as follows:


Year	Notes and contracts payable			Annual maturities
	(in thousands)			(in thousands)
2012	$	30,155
2013		208,451
2014		13,459
2015		15,327	2015	$	4,899
2016		4,172	2016		4,458
2017			2017		5,009
2018			2018		3,861
2019			2019		3,593
Thereafter		28,411	Thereafter		565,517
				$	587,337
	$	299,975

NOTE 11. Net Investment Income:

The components of net investment income are as follows:


	Year ended December 31,						Year ended December 31,
	2011		2010		2009		2014			2013		2012
	(in thousands)						(in thousands)
Interest:
Cash equivalents and deposits with savings and loan associations and banks	$	6,602	$	8,505	$	14,019
Cash equivalents and deposits with banks							$	4,471		$	3,694	$	4,407
Debt securities		47,337		48,127		48,249		56,373			47,226		45,112
Other long-term investments		1,693		5,568		12,879		1,213			2,009		1,013
Loans receivable		10,172		10,995		10,711		3,755			5,474		8,132
Dividends on marketable equity securities		2,896		2,711		5,041
Equity in earnings of affiliates		8,099		8,376		10,877
Dividends on equity securities								11,961			11,776		5,388
Equity in earnings of affiliates, net								(16,545	)		5,316		6,514
Other		5,354		9,980		18,473		10,488			14,400		10,465

	$	82,153	$	94,262	$	120,249

Total investment income								71,716			89,895		81,031
Investment expenses (1)								(675	)		—		—
Net investment income							$	71,041		$	89,895	$	81,031

(1)	Investment expenses include fees paid to third party investment managers, which the Company began utilizing in 2014.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 12. Income Taxes:

For the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, domestic and foreign pretax income ~~(loss)~~ from continuing operations before noncontrolling interests was ~~$128.2~~$301.8 million and ~~$2.1~~$48.8 million, ~~$213.5~~$286.2 million and ~~$(1.4)~~$24.5 million, and ~~$195.2~~$449.6 million and ~~$9.1~~$17.8 million, respectively.

Income taxes are summarized as follows:


	Year ended December 31,									Year ended December 31,
	2011			2010			2009			2014			2013			2012
	(in thousands)									(in thousands)
Current:
Federal	$	(23,095	)	$	69,379		$	(25,430	)	$	87,189		$	86,406		$	82,269
State		(1,267	)		14,962			3,727			4,751			7,887			15,229
Foreign		13,926			13,657			12,450			812			24,331			8,234
											92,752			118,624			105,732
		(10,436	)		97,998			(9,253	)

Deferred:
Federal		69,302			(680	)		82,488			15,594			8,937			60,242
State		4,585			(9,823	)		(4,668	)		(304	)		9,774			111
Foreign		(11,737	)		(4,345	)		1,501			8,303			(13,691	)		(407	)
											23,593			5,020			59,946
		62,150			(14,848	)		79,321		$	116,345		$	123,644		$	165,678

	$	51,714		$	83,150		$	70,068

Income taxes differ from the amounts computed by applying the federal income tax rate of 35.0%. A reconciliation of this difference is as follows:


	Year ended December 31,									Year ended December 31,
	2011			2010			2009				2014					2013					2012
	(in thousands)									(in thousands, except percentages)
Taxes calculated at federal rate	$	45,603		$	74,237		$	71,521		$	122,696		35.0	%	$	108,748		35.0	%	$	163,592		35.0	%
State taxes, net of federal benefit		2,499			3,340			(612	)		2,891		0.8			11,480		3.7			9,525		2.0
Dividends received deduction		(140	)		(250	)		(1,381	)
Change in liability for tax positions		2,548			4,626			(8,776	)		412		0.1			3,537		1.1			2,033		0.4
Exclusion of certain meals and entertainment expenses		2,245			2,889			2,675
Change in capital loss valuation allowance		—			(14,683	)		—			—		—			—		—			(5,276	)	(1.1	)
Foreign taxes in excess of federal rate		1,740			9,802			10,365
Foreign income taxed at different rates											(6,091	)	(1.7	)		8,567		2.8			2,881		0.6
Foreign tax credits											(2,184	)	(0.6	)		(5,640	)	(1.8	)		(2,921	)	(0.6	)
Other items, net		(2,781	)		3,189			(3,724	)		(1,379	)	(0.4	)		(3,048	)	(1.0	)		(4,156	)	(0.9	)
										$	116,345		33.2	%	$	123,644		39.8	%	$	165,678		35.4	%
	$	51,714		$	83,150		$	70,068

The Company’s effective income tax rate (income tax expense as a percentage of income before income taxes), was ~~39.7%~~33.2% for ~~2011, 39.2%~~2014, 39.8% for ~~2010~~2013 and ~~34.3%~~35.4% for ~~2009.~~2012. The differences in the effective tax rates were primarily due to ~~changes in the ratio of permanent differences to income before income taxes,~~ changes in state and foreign income taxes resulting from fluctuations in the Company’s noninsurance and foreign subsidiaries’ contribution to pretax profits, changes in the ratio of permanent differences to income before income taxes and changes in the liability related to tax positions reported on the Company’s tax returns. ~~In addition, the~~The effective tax rate for ~~2010 reflects~~2012 included the release of a valuation allowance recorded against capital losses.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The primary components of temporary differences that give rise to the Company’s net deferred tax ~~assets~~liability are as follows:


	December 31,						December 31,
	2011			2010			2014			2013
	(in thousands)						(in thousands)
Deferred tax assets:
Deferred revenue	$	6,008		$	6,103		$	9,887		$	8,360
Employee benefits		76,449			61,726			74,068			73,302
Bad debt reserves		13,484			17,508			15,253			17,588
Investment in affiliates		—			4,866
Investments in affiliates								13,670			8,026
Loss reserves		4,469			7,987			2,507			1,728
Pension		112,558			104,535			120,401			86,858
Capital loss carryforward		32,887			29,186
Net operating loss carryforward		28,175			22,134			23,727			27,762
Securities and other		5,422			—
Securities								—			1,880
Foreign tax credit								2,184			—
Other		6,134			4,301			8,712			6,782
								270,409			232,286
		285,586			258,346
Valuation allowance								(15,706	)		(18,119	)
								254,703			214,167
Deferred tax liabilities:
Depreciable and amortizable assets		179,613			145,785			284,532			258,855
Claims and related salvage		29,533			(1,029	)		36,653			21,196
Investment in affiliates		15,397			—
Other		—			(2,382	)
Securities								8,934			—
								330,119			280,051
		224,543			142,374

Net deferred tax asset before valuation allowance		61,043			115,972

Valuation allowance		(21,426	)		(19,126	)

Net deferred tax asset	$	39,617		$	96,846

Net deferred tax liability							$	75,416		$	65,884

The exercise of stock options ~~represents~~and vesting of RSUs represent a tax benefit ~~and~~that has been reflected as a reduction of taxes payable and an increase to equity. The benefits recorded were ~~$1.1~~$6.9 million and $6.2 million for the years ended December 31, ~~2011~~2014 and ~~2010, with no benefit recorded for the year ended December 31, 2009.~~

2013, respectively.

In connection with the Separation, the Company and TFAC entered into a ~~Tax Sharing Agreement, dated June 1, 2010 (the “Tax Sharing Agreement”),~~tax sharing agreement which governs the Company’s and CoreLogic’s respective rights, responsibilities and ~~obligations. Pursuant to the Tax Sharing Agreement, CoreLogic will prepare and file the consolidated federal income~~obligations for certain tax return, and any other tax returns that include both CoreLogic and the Company for all taxable periods ending on or prior to June 1, 2010. The Company will prepare and file all tax returns that include solely the Company for all taxable periods ending after that date. As part of the Tax Sharing Agreement, the Company is contingently responsible for 50% of certain Separation-related tax liabilities.related matters. At December 31, ~~2011~~2014 and 2010, the Company had a payable of $2.5 million and $2.3 million, respectively, to CoreLogic related to these matters which is included in due to CoreLogic, net on the Company’s consolidated balance sheet.

~~At December 31, 2011 and 2010,~~2013, the Company had a net payable to CoreLogic of ~~$35.4~~$35.1 million and ~~$61.5~~$56.5 million, respectively, related to tax matters prior to the Separation. This amount is included in the Company’s consolidated balance ~~sheet~~sheets in ~~due to CoreLogic, net. During 2011,~~other accounts payable and accrued liabilities. The decrease during the ~~Company recorded~~current year was primarily the result of tax payments made and an examination settlement reached with a ~~$5.2 million increase~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~to stockholders’ equity related~~taxing authority for tax matters prior to the ~~Separation to reflect the Company’s actual tax liability to be included in CoreLogic’s consolidated tax return for 2010.~~

Separation.

At December 31, ~~2011,~~2014, the Company had available a foreign tax credit carryover of $2.2 million. The Company expects to utilize these credits within the carryover period.

At December 31, 2014, the Company had available net operating loss carryforwards for income tax purposes totaling $122.5 million, consisting of federal, state and foreign losses of $0.5 million, $38.5 million and $83.5 million, respectively. Of the aggregate net operating ~~loss carryforwards totaling, in aggregate, approximately $122.2~~losses, $41.2 million ~~for income tax purposes, of which $45.2 million has~~have an indefinite ~~expiration. The~~expiration and the remaining ~~$77.0~~$81.3 million expire at various times beginning in ~~2012.~~

2015. The Company ~~has~~carries a ~~capital loss carryforward~~valuation allowance of ~~$93.7~~$15.7 million ~~of which $74.7~~against its deferred tax assets. Of this amount, $13.3 million ~~expires~~relates to net operating losses; the remaining $2.4 million relates to other foreign deferred tax assets. The year-over-year decrease in ~~2012. In addition,~~ the Company has net impairment and unrealized capital gains of $3.6 million, which includes $31.8 million of unrealized losses related to debt securities that the Company has the ability and intent to hold to recovery.

~~The~~overall valuation allowance relates to the utilization of certain foreign losses and other foreign deferred tax assets ~~for certain of the Company’s tax capital losses, state net operating loss carryforwards and the Company’s foreign operations.~~ against current year income.

The Company evaluates the realizability of its deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

tax assets. ~~Failure~~The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax ~~assets and~~assets. Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could ~~result in an increase~~be adjusted in the ~~Company’s effective tax rate on future earnings. The activity in~~next 12 months.

During 2012, the Company released a valuation allowance ~~primarily results from the Company’s determination~~of $5.3 million previously recorded against certain of its deferred tax assets. Specifically, management determined that it ~~is not~~was more likely than not that ~~a portion~~all of its tax capital loss ~~carryforward~~items will be realized prior to ~~its~~ expiration ~~date,~~ as the result of realized gains from sales of securities and favorable market value ~~declines~~activity in its ~~equity~~ securities ~~portfolio during the year.~~portfolio. Application of the accounting guidance related to intraperiod tax allocations resulted in ~~recording~~ the valuation allowance being credited to tax expense in ~~accumulated other comprehensive income. In addition,~~ the ~~valuation allowance has been increased for certain state and foreign net operating losses.~~

amount of $5.3 million during the year ended December 31, 2012. As of December 31, 2014, no significant capital loss carryover remains in the Company’s deferred tax inventory.

As of December 31, ~~2011,~~2014 and 2013, United States taxes were not provided for on the cumulative earnings of the Company’s foreign subsidiaries of ~~$114.8~~$132.8 million and $121.8 million, respectively, as the Company has invested or expects to invest the undistributed earnings indefinitely. If in the future these earnings are repatriated to the United States, or if the Company determines that the earnings will be remitted in the foreseeable future, additional tax provisions may be required. It is not ~~practical~~practicable to calculate the deferred taxes associated with these ~~earnings;~~earnings because of the variability of multiple factors that would need to be assessed at the time of any assumed repatriation; however, foreign tax credits may be available to reduce federal income taxes in the event of distribution.

As of December 31, ~~2011~~2014, 2013 and ~~2010,~~2012, the liability for income taxes associated with uncertain tax positions was ~~$17.3~~$24.1 million, $47.8 million and ~~$11.1~~$47.9 million, respectively. ~~This~~The net decrease in the liability ~~can~~during 2014 was primarily attributable to an examination settlement reached with a taxing authority for issues related to the timing of deductibility, which, accordingly, did not impact the Company’s consolidated statement of income. The net decrease in the liability during 2013 was primarily attributable to the Company’s effective settlement of a prior year tax return position. The net increase in the liability during 2012 was primarily attributable to the Company’s claim for a timing deduction in a prior year tax return. As of December 31, 2014, 2013 and 2012, the liabilities could be reduced by $3.4 million, $32.6 million and $32.6 million, respectively, of offsetting tax benefits associated with the correlative effects of potential adjustments including timing adjustments and state income ~~taxes and timing adjustments~~taxes. The net amounts of ~~$2.9~~$20.7 million, $15.2 million and ~~$1.5~~$15.3 million as of December 31, ~~2011~~2014, 2013 and ~~2010, respectively. The net amount of $14.4 million and $9.6 million, as of December 31, 2011 and 2010,~~2012, respectively, if recognized, would favorably affect the Company’s effective tax rate.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012 is as follows:


	December 31,							December 31,
	2011		2010		2009			2014			2013			2012
	(in thousands)							(in thousands)
Unrecognized tax benefits—opening balance	$	11,100	$	10,400	$	18,900		$	47,800		$	47,900		$	17,300
Gross decreases—tax positions in prior period		—		—		(1,700	)
Gross (decreases) increases—tax positions in prior period									(24,100	)		(600	)		200
Gross increases—current period tax positions		6,200		700		—			400			500			30,500
Expiration of the statute of limitations for the assessment of taxes		—		—		(6,800	)		—			—			(100	)

Unrecognized tax benefits—ending balance	$	17,300	$	11,100	$	10,400		$	24,100		$	47,800		$	47,900

The Company’s continuing practice is to recognize interest and penalties, if any, related to uncertain tax positions in tax expense. As of December 31, ~~2011~~2014, 2013 and ~~2010,~~2012, the Company had accrued ~~$3.6~~$8.9 million, $4.7 million and ~~$2.4~~$4.2 million, respectively, of interest and penalties (net of tax benefits of ~~$1.4~~$3.7 million, $1.9 million and ~~$0.9~~$1.7 million, respectively) related to uncertain tax positions.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various non-U.S. jurisdictions. The primary non-federal jurisdictions are California, ~~Oregon, Michigan, Texas,~~ Canada, India and the United Kingdom. The Company is no longer subject to U.S. federal, state and non-U.S. income tax examinations by taxing authorities for years prior to 2005.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions may significantly increase or decrease within the next 12 months. These changes may be the result of items such as ongoing audits or the expiration of federal and state ~~statute~~statutes of limitations for the assessment of taxes. ~~The Company estimates that there will be no increase or decrease in unrecognized tax benefits within the next 12 months.~~

The Company records a liability for potential tax assessments based on its estimate of the potential exposure. New tax laws and new interpretations of laws and rulings by tax authorities may affect the liability for potential tax assessments. Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from estimates. To the extent the Company’s estimates differ from actual payments or assessments, income tax expense is adjusted. The Company’s income tax returns in several jurisdictions are being examined by various tax authorities. The Company believes that adequate amounts of tax and related interest, if any, have been provided for any adjustments that may result from these examinations.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

NOTE 13. Earnings Per Share:

The Company’s potential dilutive securities are stock options and RSUs. Stock options and RSUs are reflected in diluted net income per share attributable to the Company’s stockholders by application of the treasury-stock method. There are no reconciling items for net income attributable to the Company for the three years ended December 31, 2011 necessary for the diluted net income per share attributable to the Company’s stockholders calculation. A reconciliation

The computation of ~~weighted-average shares outstanding is as follows:~~

2011 2010 2009
(in thousands, except per share data)
Numerator for basic and diluted net income per share attributable to the Company’s stockholders:

Net income attributable to the Company
$ 78,276    $ 127,829    $ 122,389

Denominator for basic net income per share attributable to the Company’s stockholders:

Weighted-average shares
105,197    104,134    104,006
Effect of dilutive securities:

Employee stock options and restricted stock units
1,717    2,043    —

Denominator for diluted net income per share attributable to the Company’s stockholders
106,914    106,177    104,006

Net income per share attributable to the Company’s stockholders:

Basic
$ 0.74    $ 1.23    $ 1.18

Diluted
$ 0.73    $ 1.20    $ 1.18

For the year ended December 31, 2010, basic earnings per share was computed using the number of shares of common stock outstanding immediately following the Separation, as if such shares were outstanding for the entire period prior to the Separation, plus the weighted average number of such shares outstanding following the Separation through December 31, 2010.

For the year ended December 31, 2010, diluted earnings per share was computed using (i) the number of shares of common stock outstanding immediately following the Separation, (ii) the weighted average number of such shares outstanding following the Separation through December 31, 2010, and (iii) if dilutive, the incremental common stock that the Company would issue upon the assumed exercise of stock options and the vesting of RSUs using the treasury stock method.

~~For the year ended December 31, 2009~~ basic and diluted earnings per share ~~were computed using the number of shares of common stock outstanding immediately following the Separation,~~is as ~~if such shares were outstanding for the entire period.~~follows:

	2014		2013		2012
	(in thousands, except per share data)
Numerator
Net income attributable to the Company	$	233,534	$	186,367	$	301,041
Less: dividends and undistributed earnings allocated to unvested RSUs		514		324		682
Net income allocated to common stockholders	$	233,020	$	186,043	$	300,359
Denominator
Basic weighted-average shares		106,884		106,991		106,307
Effect of dilutive employee stock options and RSUs		1,804		2,111		2,235
Diluted weighted-average shares		108,688		109,102		108,542
Net income per share attributable to the Company’s stockholders
Basic	$	2.18	$	1.74	$	2.83
Diluted	$	2.15	$	1.71	$	2.77

For the years ended December 31, ~~2011~~2014, 2013 and ~~2010, 1.4 million~~2012, 133 thousand, 11 thousand and 700 thousand, respectively, of stock options and RSUs were excluded from the weighted-average diluted common shares outstanding due to their antidilutive effect.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 14. Employee Benefit Plans:

~~In connection with the Separation, the following occurred with respect to the following employee benefit plans:~~

The ~~Company adopted TFAC’s 401(k) Savings Plan, which is now the~~ First American Financial Corporation 401(k) Savings Plan (the “Savings Plan”)~~. The account balances of employees of~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~CoreLogic who had previously participated in TFAC’s 401(k) Savings Plan were transferred to the CoreLogic, Inc. 401(k) Savings Plan.~~

The Company adopted TFAC’s deferred compensation plan. The Company assumed the portion of the deferred compensation liability associated with its employees and former employees of its businesses and CoreLogic assumed the portion of the deferred compensation liability associated with its employees and former employees of its businesses. Plan assets were divided in the same proportion as liabilities.

The Company assumed TFAC’s defined benefit pension plan, which was closed to new entrants effective December 31, 2001 and amended to “freeze” all benefit accruals as of April 30, 2008. The Company assumed the entire benefit obligation and all the plan assets associated with the defined benefit pension plan, including the portion attributable to participants who were employees of the businesses retained by CoreLogic in connection with the Separation, and CoreLogic issued a $19.9 million note payable to the Company which approximated the unfunded portion of the benefit obligation attributable to those participants. In September 2011, the Company received $17.3 million from CoreLogic in satisfaction of the remaining balance of the note. See Note 19 Transactions with CoreLogic/TFAC to the consolidated financial statements for further discussion of this note receivable from CoreLogic.

The Company adopted TFAC’s supplemental benefit plans. The Company assumed the portion of the benefit obligation associated with its employees and former employees of its businesses and CoreLogic assumed the portion of the benefit obligation associated with its employees and former employees of its businesses. The benefit obligation associated with certain participants was divided evenly between the Company and CoreLogic.

~~No material changes were made to the terms and conditions of the employee benefit plans assumed by the Company in connection with the Separation.~~

~~The Company’s Savings Plan~~ allows for employee-elective contributions up to the maximum amount as determined by the Internal Revenue Code. The Company makes discretionary contributions to the Savings Plan based on profitability, as well as the contributions of ~~the~~ participants. The Company’s expense related to the Savings Plan amounted to $8.7 million, $12.1 million and $15.5 million for the years ended December 31, 2011, 2010 and 2009, respectively. This expense represents the discretionary contribution made by the Company following the Separation and by TFAC to the Company’s employees’ accounts prior to the Separation. The Savings Plan allows the participantsParticipants are allowed to purchase the Company’s common stock as one of the investment options, subject to certain limitations. The Savings Plan held ~~4,417,000~~3,528,000 shares and ~~4,968,000~~3,903,000 shares of the Company’s common stock, representing ~~4.2%~~3.3% and ~~4.8%~~3.7% of the Company’s total common shares outstanding at December 31, ~~2011~~2014 and ~~2010,~~2013, respectively.

The ~~Company’s~~Company maintains a deferred compensation plan for certain employees that allows participants to defer up to 100% of their salary, commissions and bonus. Participants can allocate their deferrals among a variety of investment crediting options (known as “deemed investments”). ~~Deemed~~The term deemed investments ~~mean~~means that the participant has no ownership interest in the funds they select; the funds are only used to measure the gains or losses that will be attributed to ~~their~~each participant’s deferral account over time. Participants can elect to have their deferral balance paid out ~~in a future year~~ while they are still employed or after their employment ends. The deferred compensation plan is exempt from most provisions of ~~ERISA~~the Employee Retirement Income Security Act (“ERISA”) because it is only available to a select group of management and highly compensated employees and is not a qualified employee benefit plan. To preserve the tax-deferred savings advantages of a nonqualified deferred compensation plan, federal law requires that it be unfunded or informally funded. ~~The participants’~~Participant deferrals, and any earnings on those deferrals, are general unsecured obligations of the Company. The Company is informally ~~funding~~funds the deferred compensation plan through a tax-advantaged investment known as variable universal life

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

insurance. Deferred compensation plan assets are held as an asset of the Company within a special trust, called a “Rabbi Trust.” At December 31, ~~2011~~2014 and ~~2010,~~2013, the value of the assets in the Rabbi Trust of ~~$59.5~~$78.6 million and ~~$60.0~~$73.2 million, respectively, and the unfunded liabilities of ~~$58.2~~$76.4 million and ~~$61.9~~$71.1 million, ~~are~~respectively, were included in the consolidated balance sheets in other assets and pension costs and other retirement plans, respectively.

The Company’s defined benefit pension plan is a noncontributory, qualified ~~defined benefit~~ plan with benefits based on ~~the~~an employee’s compensation and years of service. The defined benefit pension plan was closed to new entrants effective December 31, 2001 and amended to “freeze” all benefit accruals as of April 30, 2008.

The Company also has nonqualified, unfunded supplemental benefit plans covering certain management personnel. ~~Benefits under the~~The Executive and Management Supplemental Benefit Plans, ~~are,~~ subject to ~~the~~certain limitations, ~~described below, based on a participant’s final average compensation, which is computed as the average compensation~~provide participants with maximum benefits of ~~the last five full calendar years preceding retirement. Maximum benefits under the Executive and Management Supplemental Benefit Plans are~~ 30% and 15%, respectively, of ~~final~~ average annual compensation ~~respectively. The Company’s compensation committee amended and restated the Executive and Management Supplemental Benefit Plans effective as of~~over a fixed five year period. Effective January 1, ~~2011. The~~2011, the plans were ~~amended to make the following changes, among others: (i) close the plans~~closed to new participants; (ii) fix the period over which the final average compensation that is used to calculate a participant’s benefit is determined as the one-year average of the five-year period ending on December 31, 2010, irrespective of the participant’s actual retirement date; and (iii) cap the maximum annual benefit at $500,000 for the Company’s chief executive officer, at $350,000 for all other Executive Supplemental Benefit Plan participants and at $250,000 for all Management Supplemental Benefit Plan participants. The amendments to the Executive and Management Supplemental Benefit Plans were accounted for as negative plan amendments with the resulting decrease in the projected benefit obligations being recorded to accumulated other comprehensive income as a prior service credit.

Certain of the Company’s subsidiaries have separate savings plans and the Company’s international subsidiaries have other employee benefit plans. Expenses related to these plans ~~that~~and the Company’s deferred compensation plan are included in the table below under other plans, ~~net line item shown below.~~

net.

The following table provides the principal components of the Company’s employee benefit plan ~~expenses related to (i) the Company’s employees’ participation in TFAC’s benefit plans prior to the Separation and (ii) the Company’s benefit plans following the Separation:~~expenses:


	Year ended December 31,						Year ended December 31,
	2011		2010		2009		2014		2013		2012
	(in thousands)						(in thousands)
Expense:
Savings plan	$	8,697	$	12,080	$	15,468	$	16,333	$	10,458	$	27,778
Defined benefit pension plans		22,386		19,652		8,643		13,465		20,975		22,657
Unfunded supplemental benefit plans		17,279		23,252		23,322		14,614		16,673		16,553
Other plans, net		6,628		8,730		1,849		9,259		15,479		10,166
							$	53,671	$	63,585	$	77,154
	$	54,990	$	63,714	$	49,282

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the ~~balance sheet impact, including~~Company’s benefit obligations, assets and funded status associated with ~~(i) the Company’s employees who participated in TFAC’s~~its defined benefit pension and supplemental benefit ~~plans prior~~plans:

	December 31,
	2014						2013
	Defined benefit pension plans			Unfunded supplemental benefit plans			Defined benefit pension plans			Unfunded supplemental benefit plans
	(in thousands)
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	382,035		$	226,458		$	424,462		$	250,226
Service costs		—			1,315			—			1,915
Interest costs		18,644			10,536			17,340			9,521
Plan amendment		—			—			—			2,088
Actuarial losses (gains)		76,164			37,281			(38,766	)		(24,233	)
Benefits paid		(26,176	)		(13,453	)		(21,001	)		(13,059	)
Projected benefit obligation at end of year		450,667			262,137			382,035			226,458
Change in plan assets:
Fair value of plan assets at beginning of year		313,469			—			294,216			—
Actual return on plan assets		24,400			—			10,971			—
Contributions		27,672			13,453			29,283			13,059
Benefits paid		(26,176	)		(13,453	)		(21,001	)		(13,059	)
Fair value of plan assets at end of year		339,365			—			313,469			—
Reconciliation of funded status:
Unfunded status of the plans	$	(111,302	)	$	(262,137	)	$	(68,566	)	$	(226,458	)
Amounts recognized in the consolidated balance sheet:
Accrued benefit liability	$	(111,302	)	$	(262,137	)	$	(68,566	)	$	(226,458	)
Amounts recognized in accumulated other comprehensive loss:
Unrecognized net actuarial loss	$	219,081		$	120,642		$	162,084		$	90,303
Unrecognized prior service cost (credit)		15			(24,964	)		40			(29,142	)
	$	219,096		$	95,678		$	162,124		$	61,161
Accumulated benefit obligation at end of year	$	450,667		$	262,137		$	382,035		$	226,458

Net periodic cost related to ~~the Separation and (ii)~~ the Company’s defined benefit pension and supplemental benefit plans includes the following ~~the Separation:~~components:

   December 31,
   2011 2010
   Defined
benefit
pension
plans Unfunded
supplemental
benefit plans Defined
benefit
pension
plans Unfunded
supplemental
benefit plans
   (in thousands)
Change in projected benefit obligation:

Benefit obligation at beginning of year
   $ 371,224    $ 215,301    $ 288,997    $ 210,396
Service costs
   —      2,167    —      3,899
Interest costs
   19,077    11,075    18,155    12,711
Actuarial losses
   14,271    7,088    23,863    19,496
Benefits paid
   (18,816 ) (12,115 ) (14,010 ) (12,165 )
Impact of Separation
   —      —      54,219    15,906
Impact of plan amendment
   —      —      —      (34,942 )


Projected benefit obligation at end of year
   385,756    223,516    371,224    215,301


Change in plan assets:

Plan assets at fair value at beginning of year
   262,827    —      203,105    —
Actual return on plan assets
   (5,990 ) —      18,800    —
Contributions
   19,057    12,115    16,088    12,165
Benefits paid
   (18,816 ) (12,115 ) (14,010 ) (12,165 )
Impact of Separation
   —      —      38,844    —


Plan assets at fair value at end of year
   257,078    —      262,827    —


Reconciliation of funded status:

Unfunded status of the plans
   $ (128,678 ) $ (223,516 ) $ (108,397 ) $ (215,301 )


Amounts recognized in the consolidated balance sheet:

Accrued benefit liability
   $ (128,678 ) $ (223,516 ) $ (108,397 ) $ (215,301 )


Amounts recognized in accumulated other comprehensive income:

Unrecognized net actuarial loss
   $ 215,769    $ 105,585    $ 198,738    $ 106,943
Unrecognized prior service cost (credit)
   90    (40,049 ) 115    (44,459 )


   $ 215,859    $ 65,536    $ 198,853    $ 62,484

	Year ended December 31,
	2014			2013			2012
	(in thousands)
Expense:
Service costs	$	1,315		$	1,915		$	1,712
Interest costs		29,180			26,861			29,068
Expected return on plan assets		(20,850	)		(18,776	)		(15,553	)
Amortization of net actuarial loss		22,587			32,033			28,368
Amortization of prior service credit		(4,153	)		(4,385	)		(4,385	)
	$	28,079		$	37,648		$	39,210

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net ~~periodic cost related to (i)~~actuarial loss and prior service credit for the ~~Company’s employees’ participation in TFAC’s~~ defined benefit pension and supplemental benefit plans ~~prior~~expected to ~~the Separation and (ii) the Company’s defined benefit pension and supplemental benefit plans following the Separation includes the following components:~~

   Year ended December 31,
   2011 2010 2009
   (in thousands)
Expense:

Service costs
   $ 2,167    $ 3,959    $ 4,476
Interest costs
   30,152    30,866    28,923
Expected return on plan assets
   (15,316 ) (12,666 ) (16,969 )
Amortization of net actuarial loss
   27,047    21,790    16,586
Amortization of prior service credit
   (4,385 ) (1,045 ) (1,051 )


   $ 39,665    $ 42,904    $ 31,965

~~The Company’s net actuarial loss and prior service credit for defined benefit pension and supplemental benefit plans that will~~ be amortized from accumulated other comprehensive ~~income (loss)~~loss into net periodic cost over the next fiscal year ~~are expected to be~~include an expense of ~~$29.1~~$34.0 million and a credit of ~~$4.4~~$4.2 million, respectively.

Weighted-average actuarial assumptions used to determine costs for the plans were as follows:

   December 31,
   2011 2010
Defined benefit pension plans

Discount rate
   5.30 % 5.81 %
Rate of return on plan assets
   5.75 % 5.75 %
Unfunded supplemental benefit plans

Discount rate
   5.30 % 5.81 %

	December 31,
	2014			2013
Defined benefit pension plans
Discount rate		4.97	%		4.18	%
Rate of return on plan assets		6.50	%		6.50	%
Unfunded supplemental benefit plans
Discount rate		4.80	%		3.91	%

Weighted-average actuarial assumptions used to determine benefit obligations for the plans were as follows:

   December 31,
   2011    2010
Defined benefit pension plans

Discount rate
   4.90 %    5.30 %
Unfunded supplemental benefit plans

Discount rate
   4.90 %    5.30 %
Salary increase rate
   N/A (1)    5.00 %

~~(1)~~

Effective January 1, 2011, the unfunded supplemental benefit plans were amended to, among other changes, fix the period over which the final average compensation that is used to calculate a participant’s benefit is determined as the one-year average of the five-year period ending on December 31, 2010, irrespective of the participant’s actual retirement date. Therefore, an assumption for salary increase rate is no longer required to determine the benefit obligation beginning December 31, 2011.

	December 31,
	2014			2013
Defined benefit pension plans
Discount rate		4.07	%		4.97	%
Unfunded supplemental benefit plans
Discount rate		4.00	%		4.80	%

The ~~discount-rate~~discount rate assumption used for the Company’s benefit ~~plan accounting~~plans reflects the yield available on high-quality, fixed-income debt securities that match the expected timing of the benefit obligation payments.

The Company adopted updated mortality tables published by the Society of Actuaries in October 2014. The revised RP-2014 tables reflect substantial life expectancy improvements relative to the last tables published in 2000.

Assumptions for the expected long-term rate of return on ~~plan~~ assets of the defined benefit pension plans are based on future expectations for returns for each asset class based on the calculated market-related value of plan assets and the effect of periodic

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

target asset allocation rebalancing, adjusted for the payment of reasonable expenses of the plan from plan assets. The expected long-term rate of return on assets was selected from within a reasonable range of rates determined by (1) historical real and expected returns for the asset classes covered by the investment policy and (2) projections of inflation over the long-term period during which benefits are payable to plan participants. The Company believes the assumptions are appropriate based on the investment mix and long-term nature of the plan’s investments. The use of expected long-term returns on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns, and therefore result in a pattern of income and cost recognition that more closely matches the pattern of the services provided by the employees.

~~The following table provides the funded status of the Company’s defined benefit pension and supplemental benefit plans:~~

   December 31,
   2011    2010
   Defined
benefit
pension
plans    Unfunded
supplemental
benefit plans    Defined
benefit
pension
plans    Unfunded
supplemental
benefit plans
   (in thousands)
Projected benefit obligation
   $ 385,756       $ 223,516       $ 371,224       $ 215,301
Accumulated benefit obligation
   $ 385,756       $ 223,516       $ 371,224       $ 215,301
Plan assets at fair value at end of year
   $ 257,078       $ —         $ 262,827       $ —

The Company has a pension investment policy designed to meet or exceed the expected rate of return ~~on plan asset assumptions.~~assumptions for assets of the plan. The policy’s investment objective is to increase the pension plan’s funding status ~~to being~~such that the plan becomes fully funded on a plan termination ~~basis.~~ basis by taking progressively less risk through aligning a greater percentage of plan assets with plan liabilities as the plan becomes more fully funded.

Under the investment policy, asset allocation targets are segmented into liability tracking assets and return seeking assets. The objective of this allocation strategy is to increase the percentage of assets in liability tracking investments as ~~the~~settlement funded status ~~of the pension plan improves, the~~improves. Return seeking assets generally include pooled investment manager is to implement a lower risk strategy in order to minimize funded status volatility, according to the predetermined asset allocation strategy disclosed below. This strategy is intended to provide the best balance of minimizing funded status volatility while maintaining upside potential over time in order to fully fund the pension plan. To achieve this, the pension plan assets are monitored regularly to determine the funded status of the plan. The investment manager is responsible for ensuring that the portfolio is invested in compliance with the stated guidelinesvehicles, foreign and ~~that the individual investments are within acceptable risk tolerance levels. The investment manager will invest the assets of the plan in equity and~~domestic equities, fixed income ~~debt~~securities, cash, REITs, and commodities. Liability tracking assets generally include fixed income securities and ~~cash. Sufficient liquidity is also maintained to provide~~pooled investment vehicles. The plan maintains a level of cash ~~flow~~and cash equivalents appropriate for ~~ongoing needs.~~the timely disbursement of benefits and payment of expenses.

Cash investments may be made in short-term securities, such as commercial paper or variable rate notes, or in money market funds. The short-term securities are investment grade with a maturity of less than 13 months. Fixed income investments must be government or government agency obligations, corporate debt or preferred stock, or fixed income mutual funds. The corporate debt securities are investment grade. Common stock investments may be either individual issues or stock mutual funds. The Company’s pension investment policy prohibits the use of the following financial instruments: options, short sales, commodities, derivatives, letter stock, private or direct placements and margin purchases. At December 31, 2011 and 2010, the Company’s pension plan assets also include $6.7 million and $6.3 million, respectively, of investment contracts with insurance companies as part of an acquired plan.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Subject to the requirements of the investment policy, the investment manager may use commingled investment vehicles including but not limited to mutual funds, common trust funds, commingled trusts, and exchange traded funds. The ~~Company’s target asset~~investment policy prohibits certain investment transactions, including derivatives and other illiquid investments (e.g., private equity and real estate), subject to certain exceptions.

The investment manager tracks the estimated settlement funded status of the plan on a regular basis. When the funded status is equal to or greater than the next trigger point, the investment manager will rebalance to the allocation associated with that trigger point. The objective of liability tracking assets is to achieve performance related to changes in the value of the plan’s settlement liabilities, which is consistent with the objective of plan termination.

Asset allocation targets based on settlement funded status for the defined benefit pension plans are as follows:

Funded Ratio

Domestic and International
Equities

Fixed Income
70% or less
   60%    40%
     75%
   53%    47%
     80%
   45%    55%
     85%
   38%    62%
     90%
   31%    69%
     95%
   23%    77%
     100%
   16%    84%
     105%
   9%    91%
     110%
   0%    100%

~~The investment manager must maintain a threshold of within 2% for each portfolio category.~~

Settlement funded status		Return seeking assets		Liability tracking assets
100.0	%	0	%	100	%
97.5	%	15	%	85	%
95.0	%	30	%	70	%
92.5	%	40	%	60	%
90.0	%	50	%	50	%
87.5	%	60	%	40	%
85.0	%	70	%	30	%
Below 85.0%		85	%	15	%

A summary of the defined benefit pension plan’s asset ~~allocation~~allocations as of December 31, ~~2011~~2014 and ~~2010~~2013 are as follows:

   Percentage of
plan assets at
December 31,
   2011 2010
Asset category

Domestic and international equities
   61.4 % 61.6 %
Fixed income
   36.4 % 34.1 %
Cash
   2.2 % 4.3 %

	December 31,
	2014			2013
Asset category
Cash and cash equivalents		0.3	%		0.7	%
Equities		45.5	%		48.3	%
Fixed income funds		32.5	%		29.7	%
Balanced funds		19.4	%		18.9	%
Other		2.3	%		2.4	%

The Company expects to make cash contributions to its ~~pension plans~~defined benefit and unfunded supplemental benefit plans of ~~$20.7~~$21.7 million and ~~$13.6~~$14.1 million, respectively, during ~~2012.~~2015.

~~The following benefit~~Benefit payments for all plans, which reflect expected future service, as appropriate, are expected to be ~~paid~~made as follows:


Year	(in thousands)			(in thousands)
2012	$	31,500
2013	$	32,523
2014	$	33,626
2015	$	34,559	2015	$	36,141
2016	$	34,896	2016	$	36,100
2017			2017	$	38,607
2018			2018	$	40,498
2019			2019	$	42,110
Five years thereafter	$	193,550	Five years thereafter	$	220,002

The Company categorizes its defined benefit pension plan assets carried at fair value using a three-level hierarchy for fair value measurements. See Note 15 Fair Value Measurements for a more in-depth discussion on the fair value hierarchy and a description for each level.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The ~~Company determines~~following table presents the fair value of ~~its~~the Company’s defined benefit pension ~~plans~~plan assets as of December 31, 2014 and 2013:

December 31, 2014	Estimated fair value		Level 1		Level 2		Level 3
December 31, 2014	(in thousands)
Cash and cash equivalents	$	1,101	$	1,101	$	—	$	—
Equities (a)		154,279		101,304		52,975		—
Fixed income funds (b)		110,405		59,507		50,898		—
Balanced funds (c)		65,856		—		65,856		—
Other (d)		7,724		—		—		7,724
	$	339,365	$	161,912	$	169,729	$	7,724

December 31, 2013	Estimated fair value		Level 1		Level 2		Level 3
December 31, 2013	(in thousands)
Cash and cash equivalents	$	2,080	$	2,080	$	—	$	—
Equities (a)		151,604		95,860		55,744		—
Fixed income funds (b)		93,210		49,281		43,929		—
Balanced funds (c)		59,147		—		59,147		—
Other (d)		7,428		—		—		7,428
	$	313,469	$	147,221	$	158,820	$	7,428

(a) Investments in passively managed index funds, actively managed mutual funds with holdings in domestic and international equities, and investments in domestic equities. These investments are valued at the closing price reported on the major market on which the individual securities are traded or the Net Asset Value (“NAV”) provided by the administrator of the fund.

(b) Investments in passively managed index funds and actively managed mutual funds with holdings in domestic and international corporate bonds, sovereign bonds, mortgage-backed securities, and other fixed income instruments. These investments are valued using matrix pricing models and quoted prices of the securities in active markets.

(c) Investments in global multi-asset risk parity strategy funds with holdings in domestic and international debt and equity securities, commodities, real estate, and derivative investments. These investments are valued using the NAV provided by the administrator of the fund.

(d) Investments in a guaranteed deposit fund with holdings in insurance contracts. These investments are valued at contract value of the fund including contributions and earnings, less applicable costs and liabilities, as provided by the administrator of the fund.

NOTE 15. Fair Value Measurements:

Certain of the Company’s assets are carried at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company categorizes its assets and liabilities carried at fair value using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. The hierarchy level assigned to ~~each security in~~ the ~~Company’s defined benefit pension plan~~ assets and liabilities is based on management’s assessment of the transparency and reliability of the inputs used into estimate the ~~valuation of such instrument~~fair values at the measurement date. ~~See Note 3 Debt and Equity Securities to the consolidated financial statements~~The three hierarchy levels are defined as follows:

Level 1—Valuations based on unadjusted quoted market prices in active markets for ~~a more in-depth discussion on the fair value hierarchy and a description for each level.~~identical assets or liabilities.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Level 2—Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets or liabilities at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment.

If the inputs used to measure fair value fall into different levels of the fair value hierarchy, the hierarchy level assigned is based upon the lowest level of input that is significant to the fair value measurement.

Assets measured at fair value on a recurring basis

The valuation techniques and inputs used by the Company to estimate the fair value of assets measured on a recurring basis, are summarized as follows:

Debt securities

The fair value of debt securities was based on the market values obtained from independent pricing services that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established independent broker-dealers. The independent pricing services monitor market indicators, industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that they recognize to be market participants. The pricing services utilize the market approach in determining the fair value of the debt securities held by the Company. The Company obtains an understanding of the valuation models and assumptions utilized by the services and has controls in place to determine that the values provided represent fair value. The Company’s validation procedures include comparing prices received from the pricing services to quotes received from other third party sources for certain securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value measurements provided by the pricing services.

Typical inputs and assumptions to pricing models used to value the Company’s U.S. Treasury bonds, municipal bonds, foreign bonds, governmental agency bonds, governmental agency mortgage-backed securities and corporate debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds. The fair value of non-agency mortgage-backed securities was obtained from the independent pricing services referenced above and subject to the Company’s validation procedures discussed above. However, since these securities were not actively traded and there were fewer observable inputs available requiring the pricing services to use more judgment in determining the fair value of the securities, they were classified as Level 3.

The significant unobservable inputs used in the fair value measurement of the Company’s non-agency mortgage-backed securities include prepayment rates, default rates and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for default rates is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

Equity securities

The fair value of equity securities, including preferred and common stocks, were based on quoted market prices for identical assets that are readily and regularly available in an active market.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the ~~Company’s defined benefit pension plan assets at~~ fair value of the Company’s assets measured on a recurring basis as of December 31, ~~2011~~2014 and ~~2010, classified using~~2013:

(in thousands)	Total		Level 1			Level 2		Level 3
December 31, 2014
Assets:
Debt securities:
U.S. Treasury bonds	$	64,982	$	—		$	64,982	$	—
Municipal bonds		587,677		—			587,677		—
Foreign bonds		196,750		—			196,750		—
Governmental agency bonds		197,874		—			197,874		—
Governmental agency mortgage- backed securities		1,812,162		—			1,812,162		—
Non-agency mortgage-backed securities		16,538		—			—		16,538
Corporate debt securities		574,269		—			574,269		—
		3,450,252		—			3,433,714		16,538
Equity securities:
Preferred stocks		15,525		15,525			—		—
Common stocks		386,887		386,887			—		—
		402,412		402,412	��		—		—
Total assets	$	3,852,664	$	402,412		$	3,433,714	$	16,538

(in thousands)	Total		Level 1		Level 2		Level 3
December 31, 2013
Assets:
Debt securities:
U.S. Treasury bonds	$	66,384	$	—	$	66,384	$	—
Municipal bonds		485,965		—		485,965		—
Foreign bonds		222,508		—		222,508		—
Governmental agency bonds		262,545		—		262,545		—
Governmental agency mortgage- backed securities		1,403,309		—		1,403,309		—
Non-agency mortgage-backed securities		19,022		—		—		19,022
Corporate debt securities		360,084		—		360,084		—
		2,819,817		—		2,800,795		19,022
Equity securities:
Preferred stocks		11,085		11,085		—		—
Common stocks		346,958		346,958		—		—
		358,043		358,043		—		—
Total assets	$	3,177,860	$	358,043	$	2,800,795	$	19,022

The Company did not have any transfers in and out of Level 1, Level 2 and Level 3 measurements during the years ended December 31, 2014 and 2013. The Company’s policy is to recognize transfers between levels in the fair value ~~hierarchy:~~hierarchy at the end of the reporting period.

   Estimated fair
value as of
December 31, 2011    Level 1    Level 2    Level 3
   (in thousands)
Cash and cash equivalents
   $ 5,591       $ 5,591       $ —         $ —








Debt securities:

Municipal bonds
   6,801       —         6,801       —
Foreign bonds
   3,724       —         3,724    —
Governmental agency mortgage-backed securities
   15,100       —         15,100       —
Corporate debt securities
   61,284       —         61,284       —








   86,909       —         86,909       —








Equity securities:

Preferred stocks
   2,954       2,954       —         —
Domestic common stocks
   105,550       105,550       —         —
International common stocks
   49,347       49,347       —         —








   157,851       157,851       —         —








Investment contracts with insurance companies
   6,727       —         —

6,727









   $ 257,078       $ 163,442       $ 86,909       $ 6,727

   Estimated fair
value as of
December 31, 2010    Level 1    Level 2    Level 3
   (in thousands)
Cash and cash equivalents
   $ 11,209       $ 11,209       $ —         $ —








Debt securities:

Municipal bonds
   8,874       —         8,874       —
Foreign bonds
   4,082       —         4,082       —
Governmental agency mortgage-backed securities
   25,481       —         25,481       —
Corporate debt securities
   45,034       —         45,034       —








   83,471       —         83,471       —








Equity securities:

Preferred stocks
   3,618       3,618       —         —
Domestic common stocks
   107,119       107,119       —         —
International common stocks
   51,139       51,139       —         —








   161,876       161,876       —         —








Investment contracts with insurance companies
   6,271       —         —         6,271








   $ 262,827       $ 173,085       $ 83,471       $ 6,271

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~NOTE 15. Fair Value~~The following table presents a summary of ~~Financial Instruments:~~

~~Guidance requires disclosure of fair value information about financial instruments, whether or not recognized~~the changes in ~~the balance sheet, for which it is practical to estimate that value. In the measurement of the~~ fair value of ~~certain financial~~Level 3 assets measured on a recurring basis for the years ended December 31, 2014 and 2013:

	Year Ended December 31,
(in thousands)	2014			2013
Non-agency mortgage-backed securities:
Fair value at beginning of year	$	19,022		$	21,846
Total gains/(losses) (realized and unrealized):
Included in earnings:
Net other-than-temporary impairment losses recognized in earnings		(1,701	)		—
Included in other comprehensive income		1,225			4,174
Settlements		(2,008	)		(6,998	)
Fair value as of December 31	$	16,538		$	19,022
Unrealized gains (losses) included in earnings for the period relating to Level 3 available-for-sale investments that were still held at the end of the period:
Net other-than-temporary impairment losses recognized in earnings	$	(1,701	)	$	—

The Company did not purchase or sell any non-agency mortgage-backed securities during the years ended December 31, 2014 and 2013.

Financial instruments ~~other valuation techniques were utilized if quoted market prices were~~ not ~~available. These derived~~measured at fair value estimates are significantly affected by the assumptions used. Additionally, the guidance excludes certain financial instruments including those related to insurance contracts, pension and other postretirement benefits, and equity method investments.

In estimating the fair value of ~~the~~its financial instruments ~~presented,~~not measured at fair value, the Company used the following methods and assumptions:

Cash and cash equivalents

The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.

~~Accounts and accrued income receivable, net~~

~~The carrying amount for accounts and accrued income receivable is a reasonable estimate of fair value due to the short-term maturity of these assets.~~

~~Loans receivable, net~~

Deposits with banks

The fair value of ~~loans receivable~~deposits with banks is estimated based on ~~the discounted value of the future cash flows using the current~~ rates ~~being~~currently offered for ~~loans with similar terms to borrowers~~deposits of similar ~~credit quality.~~remaining maturities, where applicable.

~~Investments~~

~~The carrying amount of deposits with savings and loan associations and banks is a reasonable estimate of fair value due to their short-term nature.~~

~~The methodology for determining the fair value of debt and equity securities is discussed in Note 3 Debt and Equity Securities to the consolidated financial statements.~~

Notes receivable, net

The fair value of notes receivable, net is estimated based on the discounted value of the future cash flows using approximate current market rates being offered for notes with similar maturities and similar credit quality.

The fair value of the notes receivable from CoreLogic is estimated based on the discounted value of the future cash flows using the current rates being offered for loans with similar terms to third party borrowers of similar credit quality.

Deposits

The carrying value of escrow and ~~passbook~~other deposit accounts approximates fair value due to the short-term nature of this liability. ~~The fair value of investment certificate accounts was estimated based on the discounted value of future cash flows using a discount rate approximating current market rates for similar liabilities.~~

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~Accounts payable and accrued liabilities~~

The carrying amount for accounts payable and accrued liabilities is a reasonable estimate of fair value due to the short-term maturity of these liabilities. The Company did not include the carrying amounts and fair values of pension costs and other retirement plans as the guidance excludes them from disclosure.

~~Due to CoreLogic, net~~

~~The carrying amount for due to CoreLogic, net is a reasonable estimate of fair value due to the short-term maturity of this liability.~~

Notes and contracts payable

The fair value of notes and contracts payable ~~were~~are estimated based on ~~the~~ current rates offered to the Company for debt of the same remaining maturities.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value as of December 31, ~~2011~~2014 and ~~2010 are presented in the following table.~~2013:

December 31,
2011 2010
Carrying
Amount Fair Value Carrying
Amount Fair Value
(in thousands)
Financial Assets:

Cash and cash equivalents
$ 418,299    $ 418,299    $ 728,746    $ 728,746
Accounts and accrued income receivable, net
$ 227,847    $ 227,847    $ 234,539    $ 234,539
Loans receivable, net
$ 139,191    $ 144,868    $ 161,526    $ 166,904
Investments:

Deposits with savings and loan associations and banks
$ 56,201    $ 56,201    $ 59,974    $ 59,974
Debt securities
$ 2,201,911    $ 2,201,911    $ 2,107,984    $ 2,107,984
Equity securities
$ 184,000    $ 184,000    $ 282,416    $ 282,416
Notes receivable, net
$ 15,581    $ 14,534    $ 16,068    $ 14,901
Notes receivable from CoreLogic
$ —      $ —      $ 18,787    $ 18,708
Financial Liabilities:

Deposits
$ 1,093,236    $ 1,093,771    $ 1,482,557    $ 1,483,317
Accounts payable and accrued liabilities
$ 303,478    $ 303,478    $ 327,087    $ 327,087
Due to CoreLogic, net
$ 53,264    $ 53,264    $ 62,370    $ 62,370
Notes and contracts payable
$ 299,975    $ 304,806    $ 293,817    $ 295,465

	Carrying		Estimated fair value
(in thousands)	Amount		Total		Level 1		Level 2		Level 3
December 31, 2014
Assets:
Cash and cash equivalents	$	1,190,080	$	1,190,080	$	1,190,080	$	—	$	—
Deposits with banks	$	21,445	$	21,540	$	4,068	$	17,472	$	—
Notes receivable, net	$	6,130	$	3,930	$	—	$	—	$	3,930
Liabilities:
Deposits	$	2,332,714	$	2,332,714	$	2,332,714	$	—	$	—
Notes and contracts payable	$	587,337	$	595,087	$	—	$	588,542	$	6,545

	Carrying		Estimated fair value
(in thousands)	Amount		Total		Level 1		Level 2		Level 3
December 31, 2013
Assets:
Cash and cash equivalents	$	834,837	$	834,837	$	834,837	$	—	$	—
Deposits with banks	$	23,492	$	23,601	$	2,070	$	21,531	$	—
Notes receivable, net	$	10,542	$	9,953	$	—	$	—	$	9,953
Liabilities:
Deposits	$	1,692,932	$	1,693,138	$	1,666,336	$	26,802	$	—
Notes and contracts payable	$	310,285	$	301,007	$	—	$	294,221	$	6,786

NOTE 16. Share-Based Compensation Plans:

~~Prior to the Separation, the Company participated in TFAC’s share-based compensation plans and the Company’s employees were issued TFAC equity awards.~~ The equity awards consisted of RSUs and stock options. At the date of the Separation, TFAC’s outstanding equity awards for employees of the Company and former employees of its businesses were converted into equity awards of the Company with adjustments to the number of shares underlying each such award and, with respect to options, adjustments to the per share exercise price of each such award, to maintain the pre-separation value of such awards. No material changes were made to the vesting terms or other terms and conditions of the awards. As the post-separation value of the equity awards

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

was equal to the pre-separation value and no material changes were made to the terms and conditions applicable to the awards, no incremental expense was recognized by the Company related to the conversion.

~~In connection with the Separation, the Company established the~~ First American Financial Corporation 2010 Incentive Compensation Plan (the “Incentive Compensation Plan”)~~. The Incentive Compensation Plan was adopted by the Company’s board of directors and approved by TFAC, as the Company’s sole stockholder, on~~, effective May 28, ~~2010. Eligible participants in the Incentive Compensation Plan include the Company’s directors and officers, as well as other employees. The Incentive Compensation Plan~~2010, permits the granting of stock options, stock appreciation rights, restricted stock, RSUs, performance units, performance shares and other stock-based awards. ~~Under the terms of~~Eligible participants in the Incentive Compensation Plan ~~16.0~~include the Company’s directors and officers, as well as other employees. At December 31, 2014, 6.0 million shares of common stock ~~can~~remain available to be ~~awarded~~issued from either authorized and unissued shares or previously issued shares acquired by the Company, subject to certain annual limits ~~on the amounts that can be awarded~~ based on the type of award granted. The Incentive Compensation Plan terminates 10 years from the effective date unless cancelled prior to that date by the Company’s board of directors.

~~In connection with the Separation, the Company established the~~The First American Financial Corporation 2010 Employee Stock Purchase Plan (the “ESPP”)~~. The ESPP~~ allows eligible employees the option to purchase common stock of the Company at ~~85.0%~~85% of the lower of the closing price on either the first or last day of each ~~month. Prior to the Separation, the Company’s employees participated in TFAC’s employee stock purchase plan.~~quarterly offering period. There were ~~352,000~~354,000 and 350,000 shares issued in connection with ~~the Company’s~~this plan ~~for the year ended December 31, 2011, and 175,000 and 208,000 shares issued in connection with the Company’s and TFAC’s plans~~ for the years ended December 31, ~~2010~~2014 and ~~2009,~~2013, respectively. At December 31, ~~2011,~~2014, there were ~~1,474,000~~3.4 million shares reserved for future issuances.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents ~~the share-based~~ compensation expense associated with ~~(i) the Company’s employees that participated in TFAC’s share-based compensation plans prior to the Separation and (ii)~~ the Company’s share-based compensation ~~plans following the Separation:~~plans:


	2011		2010		2009		2014		2013		2012
	(in thousands)						(in thousands)
Expense:
Restricted stock units	$	14,203	$	11,876	$	13,534	$	17,197	$	20,827	$	13,953
Stock options		9		315		493		271		8		—
Employee stock purchase plan		769		638		536		1,834		1,466		886
							$	19,302	$	22,301	$	14,839
	$	14,981	$	12,829	$	14,563

The following table summarizes RSU activity for the year ended December 31, ~~2011:~~2014:

(in thousands, except weighted-average grant-date fair value)
   Shares Weighted-average
grant-date
fair value
RSUs unvested at December 31, 2010
   3,686    $ 12.18
Granted during 2011
   798    $ 16.31
Vested during 2011
   (840 ) $ 14.04
Forfeited during 2011
   (503 ) $ 11.60


RSUs unvested at December 31, 2011
   3,141    $ 12.83

(in thousands, except weighted-average grant-date fair value)	Shares			Weighted-average grant-date fair value
RSUs unvested at December 31, 2013	2,720		$	17.60
Granted during 2014	740		$	26.76
Vested during 2014	(1,099	)	$	16.08
Forfeited during 2014	(24	)	$	18.45
RSUs unvested at December 31, 2014	2,337		$	21.21

As of December 31, ~~2011,~~2014, there was ~~$16.8~~$19.6 million of total unrecognized compensation cost related to ~~nonvested~~unvested RSUs that is expected to be recognized over a weighted-average period of ~~2.8~~3.0 years. The fair value of

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

RSUs is generally based on the market value of the Company’s shares on the date of grant. The total fair value of shares vested and not distributed for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012 was ~~$2.2~~$3.2 million, ~~$3.5~~$4.3 million and ~~$0.9~~$2.3 million, respectively.

The following table summarizes stock option activity for the year ended December 31, ~~2011:~~2014:

(in thousands, except weighted-average
exercise price and contractual term)
   Number
outstanding Weighted-
average
exercise price    Weighted-
average
remaining
contractual term    Aggregate
intrinsic
value
Balance at December 31, 2010
   2,863    $ 14.68
Exercised during 2011
   (183 ) $ 10.82
Forfeited during 2011
   (44 ) $ 18.09



Balance at December 31, 2011
   2,636    $ 14.89       2.6       $ 1,754






Vested at December 31, 2011
   2,636    $ 14.89       2.6       $ 1,754






Exercisable at December 31, 2011
   2,636    $ 14.89       2.6       $ 1,754

(in thousands, except weighted-average exercise price and contractual term)	Number outstanding			Weighted- average exercise price		Weighted- average remaining contractual term		Aggregate intrinsic value
Balance at December 31, 2013		1,270		$	18.03
Exercised during 2014		(584	)	$	15.51
Balance at December 31, 2014		686		$	20.18		2.2 years	$	9,405
Vested and expected to vest at December 31, 2014		686		$	20.18		2.2 years	$	9,405
Exercisable at December 31, 2014		586		$	18.92		1.1 years	$	8,786

~~All~~As of December 31, 2014, there was $0.8 million of total unrecognized compensation cost related to unvested stock options ~~issued under~~of the ~~Company’s plans are vested and no share-based compensation expense related to such stock options remains~~Company that is expected to be ~~recognized.~~

recognized over a weighted-average period of 3.0 years.

Total intrinsic value of options exercised for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012 was ~~$645 thousand, $168 thousand~~$7.0 million, $6.0 million and ~~$2.9~~$7.1 million, respectively. This intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option.

NOTE 17. Stockholders’ Equity:

In March ~~2011,~~2014, the Company’s board of directors approved aan increase in the size of the Company’s stock repurchase plan ~~which authorizes the repurchase of up to~~from $150.0 million to $250.0 million, of ~~the Company’s common stock.~~which $182.9 million remained as of December 31, 2014. Purchases may be made from time to time by the Company in the open market at prevailing market prices or in privately negotiated transactions. AsThe Company did not repurchase any shares of its common stock during the year ended December 31, 2014 and as of December 31, ~~2011, the Company~~2014, had repurchased and retired ~~204 thousand~~3.2 million shares of its common stock under the current authorization for a total purchase price of ~~$2.5~~$67.1 million.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 18. Commitments and Contingencies:

Lease commitments

The Company leases certain office facilities, automobiles and equipment under operating leases, which, for the most part, are renewable. The majority of these leases also provide that the Company pay insurance and taxes.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Future minimum rental payments under operating leases that have initial ~~or remaining~~ noncancelable lease terms in excess of one year as of December 31, ~~2011~~2014 are as follows:

   Operating
   (in thousands)
Year

2012
   $ 84,036
2013
   66,409
2014
   45,544
2015
   28,883
2016
   16,971
Thereafter
   16,358


   $ 258,201

	(in thousands)
Year
2015	$	79,243
2016		71,155
2017		53,431
2018		36,296
2019		23,563
Thereafter		60,273
	$	323,961

Total rental expense for all operating leases and month-to-month rentals was ~~$102.6~~$93.5 million, ~~$125.4~~$94.6 million and ~~$157.9~~$96.8 million for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009,~~2012, respectively.

Other commitments and guarantees

2013.

The Company also guarantees the obligations of certain of its subsidiaries. These obligations are included in the Company’s consolidated balance sheets as of December 31, ~~2011~~2014 and ~~2010.~~2013.

~~NOTE 19. Transactions with CoreLogic/TFAC:~~91

Prior to the Separation, the Company had certain related party relationships with TFAC. The Company does not consider CoreLogic to be a related party subsequent to the Separation. The related party relationships with TFAC prior to the Separation and subsequent relationships with CoreLogic following the Separation are discussed further below.

~~Transactions with TFAC prior to the Separation~~

Prior to the Separation, the Company was allocated corporate income and overhead expenses from TFAC for corporate-related functions based on an allocation methodology that considered the number of the Company’s domestic headcount, the Company’s total assets and total revenues or a combination of those drivers. General corporate overhead expense allocations include executive management, tax, accounting and auditing, legal and treasury services, payroll, human resources and certain employee benefits and marketing and communications. The Company was allocated general net corporate expenses of $23.3 million from TFAC during 2010 prior to the

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Separation, and $57.0 million for the year ended December 31, 2009, which are included within the investment income, net realized investment losses, personnel costs, other operating expenses, depreciation and amortization and interest expense line itemsNOTE 19. Accumulated Other Comprehensive Income (Loss):

Changes in the ~~accompanying consolidated statements~~balances of ~~income.~~

~~The Company considers the basis on which the expenses were allocated to be a reasonable reflection~~each component of the utilization of services provided to or the benefit received by the Company during the pre-separation periods presented. The allocations may not, however, reflect the expense the Company would have incurred as an independent publicly traded company for these periods. Actual costs that may have been incurred as a stand-alone company during these periods would have depended on a number of factors, including the chosen organizational structure, the functions outsourced versus performed by employees and strategic decisions in areas such as information technology and infrastructure. Following the Separation, the Company is no longer allocated corporateaccumulated other comprehensive income ~~and overhead expense, as the Company performs these functions using its own resources.~~

Prior to the Separation, a portion of TFAC’s combined debt, in the amount of $140.0 million, was allocated to the Company based on amounts directly incurred for the Company’s benefit. Net interest expense was allocated in the same proportion as debt. The Company believes the allocation basis for debt and net interest expense was reasonable. However, these amounts may not be indicative of the actual amounts that the Company would have incurred had it been operating as an independent publicly traded company for the period prior to June 1, 2010. Additionally, on January 31, 2010 the Company entered into a note payable with TFAC totaling $29.1 million. In connection with the Separation, the Company borrowed $200.0 million under its revolving credit facility and transferred such funds to CoreLogic, which fully satisfied the Company’s $140.0 million allocated portion of TFAC debt and the $29.1 million note payable to TFAC. The remaining $30.9 million transferred to CoreLogic was reflected as a distribution to CoreLogic in connection with the Separation. See Note 10 Notes and Contracts Payable to the consolidated financial statements for further discussion of the Company’s credit facility.

During the year ended December 31, 2009 the Company made a cash dividend payment of $83.0 million to TFAC which was recorded as a reduction of invested equity on the Company’s consolidated balance sheets. No cash dividends were paid to TFAC during 2010.

~~Transactions with CoreLogic following the Separation~~

In connection with the Separation, the Company and TFAC entered into various transition services agreements with effective dates of June 1, 2010. The agreements include transitional services in the areas of information technology, tax, accounting and finance, employee benefits and internal audit. Except for the information technology services agreements, the transition services agreements are short-term in nature. The Company incurred the net amounts of $6.4 million and $5.4 million(loss) for the years ended December 31, ~~2011~~2014, 2013 and ~~2010, respectively, under these agreements which~~2012 are ~~included in other operating expenses in the consolidated statements of income. No amounts were reflected in the consolidated statements of income prior to June 1, 2010,~~ as ~~the transition services agreements were not effective prior to the Separation.~~follows:

	Unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Accumulated other comprehensive income (loss)
	(in thousands)
Balance at December 31, 2011	$	(13,409	)	$	4,793		$	(168,837	)	$	(177,453	)
Change in unrealized gains (losses) on securities		52,409			—			—			52,409
Change in unrealized gains (losses) on securities for which credit losses have been recognized in earnings		6,502			—			—			6,502
Change in foreign currency translation adjustments		—			5,131			—			5,131
Net actuarial loss		—			—			(46,602	)		(46,602	)
Amortization of net actuarial loss		—			—			28,368			28,368
Amortization of prior service cost		—			—			(4,385	)		(4,385	)
Tax effect		(23,564	)		—			9,048			(14,516	)
Balance at December 31, 2012		21,938			9,924			(182,408	)		(150,546	)
Change in unrealized gains (losses) on securities		(54,000	)		—			—			(54,000	)
Change in unrealized gains (losses) on securities for which credit losses have been recognized in earnings		3,809			—			—			3,809
Change in foreign currency translation adjustments		—			(13,650	)		—			(13,650	)
Net actuarial gain		—			—			53,080			53,080
Amortization of net actuarial loss		—			—			32,033			32,033
Amortization of prior service cost		—			—			(4,385	)		(4,385	)
Tax effect		19,526			—			(31,404	)		(11,878	)
Balance at December 31, 2013		(8,727	)		(3,726	)		(133,084	)		(145,537	)
Change in unrealized gains (losses) on securities		29,889			—			—			29,889
Change in unrealized gains (losses) on securities for which credit losses have been recognized in earnings		1,229			—			—			1,229
Change in foreign currency translation adjustments		—			(16,694	)		—			(16,694	)
Net actuarial loss		—			—			(109,924	)		(109,924	)
Amortization of net actuarial loss		—			—			22,587			22,587
Amortization of prior service cost		—			—			(4,153	)		(4,153	)
Tax effect		(11,480	)		—			34,994			23,514
Balance at December 31, 2014	$	10,911		$	(20,420	)	$	(189,580	)	$	(199,089	)

Under the Separation and Distribution Agreement and other agreements, subject to certain exceptions contained in the Tax Sharing Agreement, each of the Company and CoreLogic agreed to assume and be responsible for 50% of certain of TFAC’s contingent and other corporate liabilities. All external costs and expenses associated with the management of these contingent and other corporate liabilities will be shared equally. These contingent and other corporate liabilities primarily relate to consolidated securities litigation and any actions with respect to the Separation or the Distribution brought by any third party. Contingent and other92

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

corporate liabilities that are related to only TFAC’s information solutions or financial services businesses are generally fully allocated to CoreLogic or the Company, respectively. At December 31, 2011 and 2010, no reserves were considered necessary for such liabilities.

In connection with the Separation, TFAC issued to the Company and FATICO a number of shares of its common stock that resulted in the Company and FATICO collectively owning 12.9 million shares of CoreLogic’s common stock immediately following the Separation. Under the terms of the Separation and Distribution Agreement, if the Company chooses to dispose of 1% or more of CoreLogic’s outstanding common stock at a given date, the Company must first provide CoreLogic with the option to purchase the shares. The Company has agreed to dispose of the shares within five years after the Separation or to bear any adverse tax consequences arising as a result of holding the shares for a longer period. The CoreLogic common stock is classified as available-for-sale and carried at fair value with unrealized gains or losses classified as a component of accumulated other comprehensive loss. In April 2011, FATICO sold 4.0 million shares of CoreLogic common stock for an aggregate cash price of $75.8 million and recorded a gain of $0.8 million related to the sale. At December 31, 2011 and 2010, the cost basis of the CoreLogic common stock was $167.6 million and $242.6 million, respectively, with an estimated fair value of $115.5 million and $239.5 million, respectively. The CoreLogic common stock is included in equity securities in the consolidated balance sheet.

On June 1, 2010, the Company received a note receivable from CoreLogic in the amount of $19.9 million that accrued interest at 6.52%. Interest was first due on July 1, 2010 and was due quarterly thereafter. The note receivable was due on May 31, 2017. The note approximated the unfunded portion of the benefit obligation attributable to participants of the defined benefit pension plan who were employees of TFAC’s businesses that were retained by CoreLogic in connection with the Separation. In September 2011, the Company received $17.3 million from CoreLogic in satisfaction of the remaining balance of the note. See Note 14 Employee Benefit Plans to the consolidated financial statements for further discussion of the defined benefit pension plan.

At December 31, 2011 and December 31, 2010, the Company’s federal savings bank subsidiary, First American Trust, FSB, held $4.3 million and $11.9 million, respectively, of interest and non-interest bearing deposits owned by CoreLogic. These deposits are included in deposits in the consolidated balance sheets. Interest expense on the deposits was immaterial for all periods presented.

Prior to the Separation, the Company owned three office buildings that were leased to the information solutions businesses of TFAC under the terms of formal lease agreements. In connection with the Separation, the Company distributed one of the office buildings to CoreLogic, and currently owns two office buildings that are leased to CoreLogic under the terms of formal lease agreements. Rental income associated with these properties totaled $4.4 million, $6.2 million and $8.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company and CoreLogic are also parties to certain ordinary course commercial agreements and transactions. The expenses associated with these transactions, which primarily relate to purchases of data and other settlement services totaled $15.0 million, $21.4 million and $46.4 million for the years ended December 31, 2011, 2010 and 2009, respectively, and are included in other operating expenses in the Company’s consolidated statements of income. The Company also sells data and provides other settlement services to CoreLogic through ordinary course commercial agreements and transactions resulting in revenues totaling $4.2 million, $11.8 million and $6.6 million for the years ended December 31, 2011, 2010, and 2009, respectively, which are included in direct premiums and escrow fees and information and other in the Company’s consolidated statements of income.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Prior to the Separation, certain transactions with TFAC were settled in cash and the remaining transactions were settled by non-cash capital contributions between the Company and TFAC, which resulted in net non-cash contributions from TFAC to the Company of $2.1 million for the year ended December 31, 2010. Following the Separation, all transactions with CoreLogic are settled, on a net basis, in cash.

~~NOTE 20. Other Comprehensive Income (Loss):~~

Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.

Components of ~~other comprehensive income (loss) are as follows:~~

   Net unrealized
gains (losses)
on securities Foreign
currency
translation
adjustment Pension
benefit
adjustment Accumulated
other
comprehensive
income (loss)
   (in thousands)
Balance at December 31, 2008
   $ (72,592 ) $ (26,717 ) $ (167,020 ) $ (266,329 )
Pretax change
   71,834    31,972    13,846    117,652
Pretax change in other-than-temporary impairments for which credit-related portion was recognized in earnings
   15,651    —      —      15,651
Tax effect
   (25,439 ) —      7,000    (18,439 )


Balance at December 31, 2009
   (10,546 ) 5,255    (146,174 ) (151,465 )
Pretax change
   5,249    5,705    18,103    29,057
Pretax change in other-than-temporary impairments for which credit-related portion was recognized in earnings
   8,034    —      —      8,034
Pretax change in connection with the Separation
   —      —      (36,752 ) (36,752 )
Tax effect
   (5,974 ) —      8,020    2,046


Balance at December 31, 2010
   (3,237 ) 10,960    (156,803 ) (149,080 )
Pretax change
   (11,733 ) (6,167 ) (20,059 ) (37,959 )
Pretax change in other-than-temporary impairments for which credit-related portion was recognized in earnings
   3,573    —      —      3,573
Tax effect
   (2,012 ) —      8,025    6,013


Balance at December 31, 2011
   $ (13,409 ) $ 4,793    $ (168,837 ) $ (177,453 )

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Components of~~accumulated other comprehensive income (loss) allocated to the Company and noncontrolling interests are as follows:

   Net unrealized
gains (losses)
on securities Foreign
currency
translation
adjustment Pension
benefit
adjustment Accumulated
other
comprehensive
income (loss)
   (in thousands)
2011

Allocated to the Company
   $ (13,415 ) $ 4,793    $ (168,837 ) $ (177,459 )
Allocated to noncontrolling interests
   6    —      —      6


Balance at December 31, 2011
   $ (13,409 ) $ 4,793    $ (168,837 ) $ (177,453 )


2010

Allocated to the Company
   $ (3,246 ) $ 10,893    $ (156,803 ) $ (149,156 )
Allocated to noncontrolling interests
   9    67    —      76


Balance at December 31, 2010
   $ (3,237 ) $ 10,960    $ (156,803 ) $ (149,080 )


2009

Allocated to the Company
   $ (10,475 ) $ 9,158    $ (146,174 ) $ (147,491 )
Allocated to noncontrolling interests
   (71 ) (3,903 ) —      (3,974 )


Balance at December 31, 2009
   $ (10,546 ) $ 5,255    $ (146,174 ) $ (151,465 )

	Unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Accumulated other comprehensive income (loss)
	(in thousands)
2014
Allocated to the Company	$	10,894		$	(20,420	)	$	(189,580	)	$	(199,106	)
Allocated to noncontrolling interests		17			—			—			17
Balance at December 31, 2014	$	10,911		$	(20,420	)	$	(189,580	)	$	(199,089	)
2013
Allocated to the Company	$	(8,734	)	$	(3,726	)	$	(133,084	)	$	(145,544	)
Allocated to noncontrolling interests		7			—			—			7
Balance at December 31, 2013	$	(8,727	)	$	(3,726	)	$	(133,084	)	$	(145,537	)
2012
Allocated to the Company	$	21,928		$	9,924		$	(182,408	)	$	(150,556	)
Allocated to noncontrolling interests		10			—			—			10
Balance at December 31, 2012	$	21,938		$	9,924		$	(182,408	)	$	(150,546	)

The ~~change in net unrealized gains on securities includes~~following table presents the other comprehensive income (loss) reclassification adjustments ~~of $11.0 million, $12.5 million and $16.0 million of net realized gains on debt and equity securities~~ for the years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009, respectively.~~2012:

	Unrealized gains (losses) on securities			Foreign currency translation adjustment			Pension benefit adjustment			Total other comprehensive income (loss)
	(in thousands)
Year ended December 31, 2014
Pretax change before reclassifications	$	52,693		$	(16,694	)	$	(109,924	)	$	(73,925	)
Reclassifications out of AOCI		(21,575	)		—			18,434			(3,141	)
Tax effect		(11,480	)		—			34,994			23,514
Total other comprehensive income (loss), net of tax	$	19,638			(16,694	)	$	(56,496	)	$	(53,552	)
Year ended December 31, 2013
Pretax change before reclassifications	$	(40,396	)	$	(13,650	)	$	53,080		$	(966	)
Reclassifications out of AOCI		(9,795	)		—			27,648			17,853
Tax effect		19,526			—			(31,404	)		(11,878	)
Total other comprehensive income (loss), net of tax	$	(30,665	)	$	(13,650	)	$	49,324		$	5,009
Year ended December 31, 2012
Pretax change before reclassifications	$	128,745		$	5,131		$	(46,602	)	$	87,274
Reclassifications out of AOCI		(69,834	)		—			23,983			(45,851	)
Tax effect		(23,564	)		—			9,048			(14,516	)
Total other comprehensive income (loss), net of tax	$	35,347		$	5,131		$	(13,571	)	$	26,907

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the effect of the reclassifications out of accumulated other comprehensive income (loss) on the respective line items in the consolidated statements of income:


	Amounts reclassified from accumulated other comprehensive income (loss)
	Year ended December 31,							Affected line items in the
(in thousands)	2014				2013			consolidated statements of income
Unrealized gains (losses) on securities:
Net realized gains (losses) on sales of securities	$	23,276		$	9,795			Net realized investment gains
Net other-than-temporary impairment losses		(1,701	)		—			Net other-than-temporary impairment losses
Pretax total	$	21,575		$	9,795
Tax effect	$	(7,959	)	$	(3,811	)
Pension benefit adjustment:
Amortization of defined benefit pension and supplemental benefit plan items:
Net actuarial loss	$	(22,587	)	$	(32,033	)	(1)
Prior service credit		4,153			4,385		(1)
Pretax total	$	(18,434	)	$	(27,648	)
Tax effect	$	7,051		$	10,757

(1)	These accumulated other comprehensive income components are included in the computation of net periodic cost. See Note 14 Employee Benefit Plans for additional details.

NOTE ~~21.~~20. Litigation and Regulatory Contingencies:

The Company and its subsidiaries are parties to a number of non-ordinary course lawsuits. ~~Frequently these~~These lawsuits frequently are similar in nature to other lawsuits pending against the Company’s competitors.

For those non-ordinary course lawsuits where the Company has determined that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has been recorded. Actual losses may materially differ from the amounts recorded.

For a substantial majority of these lawsuits, however, it is not possible to assess the probability of loss. Most of these lawsuits are putative class actions which require a plaintiff to satisfy a number of procedural requirements before proceeding to trial. These requirements include, among others, demonstration to a court that the law proscribes in some manner the Company’s activities, the making of factual allegations sufficient to suggest that the Company’s activities exceeded the limits of the law and a determination by the court—known as class certification—that the law permits a group of individuals to pursue the case together as a class. In certain instances the Company may also be able to compel the plaintiff to arbitrate its claim on an individual basis. If these procedural requirements are not met, either the lawsuit cannot proceed or, as is the case with class certification or compelled arbitration, the plaintiffs lose the financial incentive to proceed with the case (or the amount at issue effectively becomes de ~~minimus)~~minimis). Frequently, a court’s determination as to these procedural requirements is subject to appeal to a higher court. As a result of, among other factors, ambiguities and inconsistencies in the myriad laws applicable to the Company’s business and the uniqueness of the factual issues presented in any given lawsuit, the Company often cannot determine the probability of loss until a court has finally determined that a plaintiff has satisfied applicable procedural requirements.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Furthermore, because most of these lawsuits are putative class actions, it is often impossible to estimate the possible loss or a range of loss amounts, even where the Company has determined that a loss is reasonably possible. Generally class actions involve a large number of people and the effort to determine which people satisfy the requirements to become plaintiffs—or class members—is often time consuming and burdensome. Moreover, these lawsuits raise complex factual issues which result in uncertainty as to their outcome and, ultimately, make it difficult for the Company to estimate the amount of damages which a plaintiff might successfully prove. In addition, many of the Company’s businesses are regulated

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

by various federal, state, local and foreign governmental agencies and are subject to numerous statutory guidelines. These regulations and statutory guidelines often are complex, inconsistent or ambiguous, which results in additional uncertainty as to the outcome of a given lawsuit—including the amount of damages a plaintiff might be afforded—or makes it difficult to analogize experience in one case or jurisdiction to another case or jurisdiction.

Most of the non-ordinary course lawsuits to which the Company and its subsidiaries are parties challenge practices in the Company’s title insurance business, though a limited number of cases also pertain to the Company’s other businesses. These lawsuits include, among others, cases alleging, among other assertions, that the Company, one of its subsidiaries and/or one of its agents:

·	charged an improper rate for title insurance in a refinance transaction, including

~~Boucher v. First American Title Insurance Company, filed on May 16, 2007 and pending in the United States District Court for the Western District of Washington,~~
·
Levine v. First American Title Insurance Company, filed on February 26, 2009 and pending in the United States District Court for the Eastern District of Pennsylvania,

~~Loef v. First American Title Insurance Company, filed on August 16, 2008 and pending in the United States District Court for the District of Maine,~~
·
Lewis v. First American Title Insurance Company, filed on November 28, 2006 and pending in the United States District Court for the District of Idaho,

~~Hamilton v. First American Title Insurance Company, filed on August 22, 2007 and pending in the United States District Court for the Northern District of Texas,~~
·
Raffone v. First American Title Insurance Company, filed on February 14, 2004 and pending in the Circuit Court, Nassau County, Florida, and

~~Hamilton v. First American Title Insurance Company, et al., filed on August 25, 2008 and pending in the Superior Court of the State of North Carolina, Wake County,~~

~~Haskins v. First American Title Insurance Company, filed on September 29, 2010 and pending in the United States District Court for the District of New Jersey,~~

~~Johnson v. First American Title Insurance Company, filed on May 27, 2008 and pending in the United States District Court for the District of Arizona,~~

~~Levine v. First American Title Insurance Company, filed on February 26, 2009 and pending in the United States District Court for the Eastern District of Pennsylvania,~~

~~Lewis v. First American Title Insurance Company, filed on November 28, 2006 and pending in the United States District Court for the District of Idaho,~~

~~Raffone v. First American Title Insurance Company, filed on February 14, 2004 and pending in the Circuit Court, Nassau County, Florida,~~

~~Slapikas v. First American Title Insurance Company, filed on December 19, 2005 and pending in the United States District Court for the Western District of Pennsylvania and~~

~~Tello v. First American Title Insurance Company, filed on July 14, 2009 and pending in the United States District Court for the District of New Hampshire.~~
·
Slapikas v. First American Title Insurance Company, filed on December 19, 2005 and pending in the United States District Court for the Western District of Pennsylvania.

All of these lawsuits are putative class actions. A court has only granted class certification in ~~Loef, Hamilton (North Carolina), Johnson,~~ Lewis ~~Raffone~~ and ~~Slapikas. An appeal to a higher court is pending with~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~respect to the granting of~~Raffone. The class ~~certification~~originally certified in ~~Hamilton (North Carolina).~~Slapikas was subsequently decertified. For the reasons stated above, the Company has been unable to assess the probability of loss or estimate the possible loss or the range of loss or, where the Company has been able to make an estimate, the Company believes the amount is immaterial to the consolidated financial statements as a whole.

purchased minority interests in title insurance agents as an inducement to refer title insurance underwriting business to the Company or gave items of value to title insurance agents and others for referrals of business ~~in each case~~ in violation of the Real Estate Settlement Procedures Act, including

·	Edwards v. First American Financial Corporation, filed on June 12, 2007 and pending in the United States District Court for the Central District of California.

~~Edwards v. First American Financial Corporation, filed on June 12, 2007 and pending in the United States District Court for the Central District of California, and~~

~~Galiano v. First American Title Insurance Company, et al., filed on February 8, 2008 and pending in the United States District Court for the Eastern District of New York.~~

~~Galiano is a putative class action for which a class has not been certified.~~ In Edwards a narrow class has been certified. ~~The United States Supreme Court is reviewing whether the Edwards plaintiff has the legal right to sue.~~ For the reasons stated above, the Company has been unable to ~~assess the probability of loss or~~ estimate the possible loss or the range of loss.

·	engaged in the unauthorized practice of law, including

·	Gale v. First American Title Insurance Company, et al., filed on October 16, 2006 and pending in the United States District Court of Connecticut.

~~conspired with its competitors to fix prices or otherwise engaged~~The class originally certified in ~~anticompetitive behavior, including~~

~~Barton v. First American Title Insurance Company, et al, filed March 10, 2008 and pending in the United States District Court for the Northern District of California,~~

~~Holt v. First American Title Insurance Company, et al., filed March 11, 2008 and pending in the United States District Court for the Eastern District of Pennsylvania,~~

~~Katz v. First American Title Insurance Company, et al., filed March 18, 2008 and pending in the United States District Court for the Northern District of Ohio,~~

~~McCray v. First American Title Insurance Company, et al., filed October 15, 2008 and pending in the United States District Court for the District of Delaware and~~

~~Swick v. First American Title Insurance Company, et al., filed March 19, 2008, and pending in the United States District Court for the District of New Jersey.~~

~~All of these lawsuits are putative class actions for which a class has not been certified.~~Gale was subsequently decertified. For the reasons described above, the Company has not yet been able to assess the probability of loss or estimate the possible loss or the range of loss.

overcharged or improperly charged fees for products and services, denied home warranty claims, failed to timely file certain documents, and gave items of value to developers, builders and others as inducements to refer business in violation of certain laws, such as consumer protection laws and laws generally prohibiting unfair business practices, and certain obligations, including

·	Bushman v. First American Title Insurance Company, et al., filed on November 21, 2013 and pending in the Circuit Court of the State of Michigan, County of Washtenaw,

·	Chassen v. First American Financial Corporation, et al., filed on January 22, 2009 and pending in the United States District Court of New Jersey,

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

·	DeLaurentis v. Data Tree Information Services LLC, filed on January 16, 2015 and pending in the United States District Court for the Southern District of New York,

·	Gunning v. First American Title Insurance Company, filed on July 14, 2008 and pending in the United States District Court for the Eastern District of Kentucky,

·	Kaufman v. First American Financial Corporation, et al., filed on December 21, 2007 and pending in the Superior Court of the State of California, County of Los Angeles,

·	Kirk v. First American Financial Corporation, et al., filed on June 15, 2006 and pending in the Superior Court of the State of California, County of Los Angeles,

·	Sjobring v. First American Financial Corporation, et al., filed on February 25, 2005 and pending in the Superior Court of the State of California, County of Los Angeles,

·	Snyder v. First American Financial Corporation, et al., filed on June 21, 2014 and pending in the United States District Court for the District of Colorado,

·	Wilmot v. First American Financial Corporation, et al., filed on April 20, 2007 and pending in the Superior Court of the State of California, County of Los Angeles, and

·	In re First American Home Buyers Protection Corporation, consolidated on October 9, 2014 and pending in the United States District Court for the Southern District of California.

~~engaged in the unauthorized practice~~All of ~~law, including~~

~~Gale v. First American Title Insurance Company, et al., filed on October 16, 2006~~these lawsuits, except Kaufman and ~~pending in the United States District Court for the District of Connecticut and~~

~~Katin v. First American Signature Services, Inc., et al., filed on May 9, 2007 and pending in the United States District Court for the District of Massachusetts.~~

~~Katin is a~~Kirk, are putative class ~~action. A~~actions for which a class has not been certified. In Kaufman a class was certified ~~in Gale.~~but that certification was subsequently vacated. A trial of the Kirk matter has concluded, plaintiff has filed a notice of appeal and the Company filed a cross appeal. For the reasons described above, the Company has not yet been able to assess the probability of loss or estimate the possible loss or the range of ~~loss.~~

~~misclassified employees and failed to pay overtime, including~~

~~Bartko v. First American Title Insurance Company, filed on November 8, 2011, and pending in the Superior Court of the State of California, Los Angeles.~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Bartko is a putative class action for which a class has not been certified. For the reasons described above,~~loss or, where the Company has ~~not yet~~ been able to ~~assess the probability of loss or~~make an estimate, the ~~possible loss or~~Company believes the ~~range of loss.~~

~~overcharged or improperly charged fees for products and services provided in connection with~~amount is immaterial to the ~~closing of real estate transactions, denied home warranty claims, recorded telephone calls, acted~~consolidated financial statements as an unauthorized trustee and gave items of value to developers, builders and others as inducements to refer business in violation of certain other laws, such as consumer protection laws and laws generally prohibiting unfair business practices, and certain obligations, including

~~Carrera v. First American Home Buyers Protection Corporation, filed on September 23, 2009 and pending in the Superior Court of the State of California, County of Los Angeles,~~

~~Chassen v. First American Financial Corporation, et al., filed on January 22, 2009 and pending in the United States District Court for the District of New Jersey,~~

~~Coleman v. First American Home Buyers Protection Corporation, et al., filed on August 24, 2009 and pending in the Superior Court of the State of California, County of Los Angeles,~~

~~Eberhard v. First American Title Insurance Company, et al., filed on April 4, 2011 and pending in the Court of Common Pleas Cuyahoga County, Ohio,~~

~~Eide v. First American Title Company, filed on February 26, 2010 and pending in the Superior Court of the State of California, County of Kern,~~

~~Gunning v. First American Title Insurance Company, filed on July 14, 2008 and pending in the United States District Court for the Eastern District of Kentucky,~~

~~Kaufman v. First American Financial Corporation, et al., filed on December 21, 2007 and pending in the Superior Court of the State of California, County of Los Angeles,~~

~~Kirk v. First American Financial Corporation, filed on June 15, 2006 and pending in the Superior Court of the State of California, County of Los Angeles,~~

~~Sjobring v. First American Financial Corporation, et al., filed on February 25, 2005 and pending in the Superior Court of the State of California, County of Los Angeles,~~

~~Smith v. First American Title Insurance Company, filed on November 23, 2011 and pending in the United States District Court for the Western District of Washington,~~

~~Tavenner v. Talon Group, filed on August 18, 2009 and pending in the United States District Court for the Western District of Washington, and~~

~~Wilmot v. First American Financial Corporation, et al., filed on April 20, 2007 and pending in the Superior Court of the State of California, County of Los Angeles.~~

~~All of these lawsuits, except Sjobring, are putative class actions for which~~ a class has not been certified. In Sjobring a class was certified but that certification was subsequently vacated. For the reasons described above, the Company has not yet been able to assess the probability of loss or estimate the possible loss or the range of loss.

whole.

While some of the lawsuits described above may be material to the Company’s operating results in any particular period if an unfavorable outcome results, the Company does not believe that any of these lawsuits will have a material adverse effect on the Company’s overall financial condition or liquidity.

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

On March 5, 2010, Bank of America, N.A. filed a complaint in the North Carolina General Court of Justice, Superior Court Division against United General Title Insurance Company and First American Title Insurance Company alleging that the defendants failed to pay or failed to timely respond to certain claims made on title insurance policies issued in connection with home equity loans or lines of credit that are now in default.

On April 1, 2010, the Company filed a third party complaint within the same litigation against Fiserv Solutions, Inc. for breach of contract, indemnification and other matters relating to the plaintiff’s allegations.

During the fourth quarter of 2011, the Company, Bank of America and Fiserv settled the lawsuit through mediation. As a result of the settlement, the Company recorded a charge of $19.2 million in the fourth quarter, which is in addition to the $13.0 million charge recorded in the third quarter of 2011 and is net of all recoveries. These charges were recorded to provision for policy losses and other claims on the accompanying consolidated statements of income. The settlement extinguishes all Company liability in connection with policies issued to Bank of America of the type that are the subject of the lawsuit, whether or not Bank of America has submitted a claim with respect to such policies. The court approved of the settlement on December 8, 2011 and dismissed the case with prejudice.

The Company also is a party to non-ordinary course lawsuits other than those described above. With respect to these lawsuits, the Company has determined either that a loss is not ~~probable~~reasonably possible or that the ~~possible~~estimated loss or range of loss, if any, is not material to the consolidated financial statements as a whole.

The Company’s title insurance, property and casualty insurance, home warranty, banking, thrift, trust and investment advisory businesses are regulated by various federal, state and local governmental agencies. Many of the Company’s other businesses operate within statutory guidelines. Consequently, the Company may from time to time be subject to ~~audit~~examination or investigation by such governmental agencies. Currently, governmental agencies are ~~auditing~~examining or investigating certain of the Company’s operations. These ~~audits~~exams or investigations include inquiries into, among other matters, pricing and rate setting practices in the title insurance industry, competition in the title insurance industry, real estate settlement service customer acquisition and retention practices and agency relationships. With respect to matters where the Company has determined that a loss is both probable and reasonably estimable, the Company has recorded a liability representing its best estimate of the financial exposure based on known facts. While the ultimate disposition of each such ~~audit~~exam or investigation is not yet determinable, the Company does not believe that individually or in the aggregate they will have a material adverse effect on the Company’s financial condition, results of operations or cash flows. These ~~audits~~exams or investigations could, however, result in changes to the Company’s business practices which could ultimately have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

The Company’s Canadian operations provide certain services to lenders which it believes to be exempt from excise tax under applicable Canadian tax laws. However, in October 2014, the Canadian taxing authority provided internal guidance that the services in question should be subject to the excise tax. While discussions with the taxing authority are ongoing, the Company believes that the guidance may result in an assessment. The amount, if any, of such assessment is not currently

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

known, and any such assessment would be subject to negotiation. In the event that the Company disagrees with the ultimate assessment, the Company intends to avail itself of avenues of appeal. While the Company believes it is reasonably likely that the Company would prevail on the merits, a loss associated with the matter is possible. In light of the foregoing, the Company is not currently able to reasonably estimate a loss or range of loss associated with the matter. While such a loss could be material to the Company’s operating results in any particular period if an unfavorable outcome results, the Company does not believe that this matter will have a material adverse effect on the Company’s overall financial condition or liquidity.

The Company and its subsidiaries also are involved in numerous ongoing routine legal and regulatory proceedings related to their operations. ~~While~~With respect to each of these proceedings, the ~~ultimate disposition~~Company has determined either that a loss is not reasonably possible or that the estimated loss or range of loss, if any, is not material to the consolidated financial statements as a whole.

NOTE 21. Business Combinations:

In March 2014, the Company completed the acquisition of a company that provides loan quality analytics, decision support tools and loan review services for the mortgage industry for a purchase price of $151.2 million. The Company completed additional acquisitions during 2014 for an aggregate purchase price of $11.3 million. The Company allocates the purchase price of each ~~proceeding is not determinable,~~acquisition to the ~~ultimate resolution~~assets acquired and liabilities assumed using a variety of ~~any of such proceedings, individually or~~valuation techniques, including discounted cash flow analysis. These acquisitions have been included in the ~~aggregate, could have a material adverse effect on the~~ Company’s ~~financial condition, results of operations or cash flows in the period of disposition.~~

~~NOTE 22. Business Combinations:~~

title insurance and services segment.

During the year ended December 31, ~~2011,~~2013, the Company completed ~~three~~ acquisitions for an aggregate purchase price of ~~$2.1~~$5.3 million in cash and accrued contingent consideration of ~~$2.5~~$1.2 million. The purchase price of each acquisition was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis. These ~~three acquisitions have been included in the Company’s title insurance and services segment.~~

~~FIRST AMERICAN FINANCIAL CORPORATION~~

~~AND SUBSIDIARY COMPANIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

In addition to the acquisitions discussed above, during the year ended December 31, 2011, the Company purchased additional noncontrolling interests in companies already included in the Company’s consolidated financial statements for a total purchase price of $4.1 million in cash.

During the year ended December 31, 2010, the Company completed five acquisitions for an aggregate purchase price of $10.9 million in cash. The purchase price of each acquisition was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis. These fivefour acquisitions have been included in the Company’s title insurance and services segment.

In addition to the acquisitions discussed above, during the year ended December 31, 2010, the Company purchased the remaining noncontrolling interests in three companies already included in the Company’s consolidated financial statements. The total purchase price of these transactions was $2.8 million in cash and $0.5 million in notes payable.

NOTE ~~23.~~22. Segment Financial Information:

The Company consists of the following reportable segments and a corporate function:

The Company’s title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions involving the use of real property related data designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant records and images; and provides banking, trust and investment advisory services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies and the District of Columbia. The Company also offers title insurance and other insurance and guarantee products, as well as related settlement services segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services, accommodates tax-deferred exchanges of real estate, maintains, manages and provides access to title plant records and images and provides banking, trust and investment advisory services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies and the District of Columbia. The Company also offers title insurance and similar products, as well as related services, either directly or through joint ventures in foreign countries, including Canada, the United Kingdom, Australia and various other established and emerging markets.

The corporate function consists primarily of certain financing facilities as well as the corporate services that support the Company’s business operations. Eliminations consist of inter-segment revenues and related expenses included in the results of the operating segments. ~~The Company did not record inter-segment eliminations for the year ended December 31, 2009, as there was no inter-segment income or expense.~~

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Selected financial information about the Company’s operations, by segment, for each of the past three years is as follows:

																			Revenues			Depreciation and amortization		Equity in earnings of affiliates, net			Income (loss) before income taxes			Assets			Investments in equity method affiliates		Capital expenditures
	Revenues			Depreciation and amortization		Equity in earnings of affiliates			Income (loss) before income taxes			Assets			Investment in affiliates		Capital expenditures		(in thousands)
	(in thousands)
2011
2014
Title Insurance and Services	$	3,539,127		$	69,229	$	8,340		$	158,642		$	4,947,903		$	132,628	$	68,098	$	4,304,428		$	77,820	$	(16,545	)	$	373,024		$	6,767,245		$	106,083	$	95,949
Specialty Insurance		286,982			4,197		—			39,143			490,620			—		7,024		368,666			4,978		—			52,974			506,242			—		3,412
Corporate		(1,660	)		3,463		(241	)		(67,877	)		48,606			4,099		251		6,415			2,799		—			(75,438	)		464,980			—		—
Eliminations		(3,875	)		—		—			385			(116,792	)		—		—		(1,560	)		—		—			—			(72,367	)		—		—
																			$	4,677,949		$	85,597	$	(16,545	)	$	350,560		$	7,666,100		$	106,083	$	99,361
	$	3,820,574		$	76,889	$	8,099		$	130,293		$	5,370,337		$	136,727	$	75,373

2010
2013
Title Insurance and Services	$	3,613,590		$	72,566	$	8,006		$	229,522		$	5,109,174		$	140,923	$	82,123	$	4,606,088		$	66,956	$	7,387		$	350,165		$	5,751,632		$	124,921	$	83,469
Specialty Insurance		286,566			5,341		—			42,695			488,351			—		3,273		339,613			4,865		—			42,132			499,788			—		3,673
Corporate		8,252			2,735		370			(60,111	)		373,976			5,861		3,329		13,008			3,095		(2,071	)		(81,589	)		369,385			101		—
Eliminations		(1,796	)		—		—			—			(149,675	)		—		—		(2,632	)		—		—			—			(61,622	)		—		—
																			$	4,956,077		$	74,916	$	5,316		$	310,708		$	6,559,183		$	125,022	$	87,142
	$	3,906,612		$	80,642	$	8,376		$	212,106		$	5,821,826		$	146,784	$	88,725

2009
2012
Title Insurance and Services	$	3,767,355		$	76,038	$	10,577		$	215,116		$	4,824,581		$	228,735	$	34,318	$	4,200,520		$	67,610	$	7,677		$	473,681		$	5,427,432		$	127,217	$	78,614
Specialty Insurance		278,376			4,295		—			31,444			498,740			—		7,503		315,171			4,553		—			47,459			487,780			—		5,278
Corporate		1,103			3,879		300			(42,215	)		206,960			—		483		29,892			2,787		(1,163	)		(53,349	)		299,707			2,753		—
Eliminations																				(3,762	)		—		—			(385	)		(137,293	)		—		—
																			$	4,541,821		$	74,950	$	6,514		$	467,406		$	6,077,626		$	129,970	$	83,892
	$	4,046,834		$	84,212	$	10,877		$	204,345		$	5,530,281		$	228,735	$	42,304

~~Total revenues~~Revenues from external customers ~~separated~~allocated between domestic and foreign operations, and by segment, for each of the ~~three~~ years ended December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012 is as follows:

   2011    2010    2009
   Domestic    Foreign    Domestic    Foreign    Domestic    Foreign
   (in thousands)
Title Insurance and Services
   $ 3,189,040       $ 350,087       $ 3,286,997       $ 326,593       $ 3,470,751       $ 296,604
Specialty Insurance
   286,982       —         286,566       —         278,376       —












   $ 3,476,022       $ 350,087       $ 3,573,563       $ 326,593       $ 3,749,127       $ 296,604

	Year Ended December 31,
	2014				2013				2012
	Domestic		Foreign		Domestic		Foreign		Domestic		Foreign
	(in thousands)
Title Insurance and Services	$	3,977,498	$	325,393	$	4,283,067	$	320,413	$	3,865,480	$	332,577
Specialty Insurance		368,666		—		339,613		—		313,889		—
	$	4,346,164	$	325,393	$	4,622,680	$	320,413	$	4,179,369	$	332,577

Long-lived assets ~~separated~~allocated between domestic and foreign operations, and by segment, as of December 31, ~~2011, 2010~~2014, 2013 and ~~2009~~2012 are as follows:


	December 31,												December 31,
	2011				2010				2009				2014				2013				2012
	Domestic		Foreign		Domestic		Foreign		Domestic		Foreign		Domestic		Foreign		Domestic		Foreign		Domestic		Foreign
					(in thousands)								(in thousands)
Title Insurance and Services	$	1,826,362	$	146,213	$	1,870,939	$	143,284	$	1,955,317	$	209,801	$	1,792,387	$	122,045	$	1,610,310	$	135,912	$	1,580,399	$	151,289
Specialty Insurance		149,105		—		150,328		—		160,599		—		105,062		—		105,724		—		104,698		—
													$	1,897,449	$	122,045	$	1,716,034	$	135,912	$	1,685,097	$	151,289
	$	1,975,467	$	146,213	$	2,021,267	$	143,284	$	2,115,916	$	209,801

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

QUARTERLY FINANCIAL DATA

(Unaudited)

   Quarter Ended
   March 31 June 30 September 30 (2)    December 31
   (in thousands, except per share amounts)
2011 (1)

Revenues
   $ 931,700    $ 927,343    $ 964,965       $ 996,566
(Loss) income before income taxes
   $ (23,449 ) $ 49,215    $ 38,411       $ 66,116
Net (loss) income
   $ (15,241 ) $ 32,147    $ 21,295       $ 40,378
Net income (loss) attributable to noncontrolling interests
   $ 94    $ (194 ) $ 252       $ 151
Net (loss) income attributable to the Company
   $ (15,335 ) $ 32,341    $ 21,043       $ 40,227
Net (loss) income per share attributable to the Company’s stockholders (3):

Basic
   $ (0.15 ) $ 0.31    $ 0.20       $ 0.38
Diluted
   $ (0.15 ) $ 0.30    $ 0.20       $ 0.38

	Quarter Ended
	March 31		June 30		September 30		December 31
	(in thousands, except per share amounts)
2014
Revenues	$	1,012,799	$	1,149,969	$	1,259,730	$	1,255,451
Income before income taxes	$	35,253	$	76,458	$	115,952	$	122,897
Net income	$	21,852	$	50,688	$	80,937	$	80,738
Net income attributable to noncontrolling interests	$	128	$	94	$	232	$	227
Net income attributable to the Company	$	21,724	$	50,594	$	80,705	$	80,511
Net income per share attributable to the Company’s stockholders (1):
Basic	$	0.20	$	0.47	$	0.75	$	0.75
Diluted	$	0.20	$	0.47	$	0.74	$	0.74

(1)	Net income for the year ended December 31, 2011 includes a net increase of $1.6 million related to certain items that should have been recorded in a prior year. These items increased diluted net income per share attributable to the Company’s stockholders by $0.02 for the year.

~~(2)~~

Net income for the third quarter ended September 30, 2011 includes a net reduction of $0.9 million related to certain items that should have been recorded in a prior quarter. These items decreased diluted net income per share attributable to the Company’s stockholders by $0.01 for the quarter. The Company assessed these items and concluded that such items were not material to the previously reported consolidated financial statements and are not material to the consolidated financial statements for the year ended December 31, 2011.

~~(3)~~

Net income per share attributable to the Company’s stockholders for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period.

										Quarter Ended
	Quarter Ended									March 31		June 30		September 30		December 31 (1)
	March 31			June 30		September 30		December 31 (2)		(in thousands, except per share amounts)
	(in thousands, except per share amounts)
2010 (1)
2013
Revenues	$	908,426		$	969,924	$	1,003,523	$	1,024,739	$	1,146,763	$	1,288,464	$	1,300,978	$	1,219,872
Income before income taxes	$	24,540		$	56,995	$	55,988	$	74,583	$	59,592	$	59,224	$	107,045	$	84,847
Net income	$	13,729		$	34,140	$	33,343	$	47,744	$	36,232	$	34,948	$	64,095	$	51,789
Net (loss) income attributable to noncontrolling interests	$	(40	)	$	307	$	210	$	650
Net income attributable to noncontrolling interests										$	54	$	276	$	205	$	162
Net income attributable to the Company	$	13,769		$	33,833	$	33,133	$	47,094	$	36,178	$	34,672	$	63,890	$	51,627
Net income per share attributable to the Company’s stockholders (3) (4):
Net income per share attributable to the Company’s stockholders (2):
Basic	$	0.13		$	0.33	$	0.32	$	0.45	$	0.34	$	0.32	$	0.60	$	0.49
Diluted	$	0.13		$	0.32	$	0.31	$	0.44	$	0.33	$	0.31	$	0.59	$	0.48

(1)

Net income for the ~~year~~quarter ended December 31, ~~2010~~2013 includes a net ~~expense~~reduction of ~~$7.7~~$4.4 million related to certain items that should have been recorded in a prior ~~year.~~period. These items decreased diluted net income per share attributable to the Company’s stockholders by ~~$0.06~~$0.04 for the ~~year.~~quarter.

(2)	Net income for the fourth quarter ended December 31, 2010 includes net expense of $6.9 million related to certain items that should have been recorded in a prior quarter. These items decreased diluted net income per share attributable to the Company’s stockholders by $0.06 for the quarter.

~~(3)~~

~~(4)~~

Per share information was computed using the number of shares of common stock outstanding immediately following the Separation, as if such shares were outstanding for the entire period prior to the Separation.

SCHEDULE I

1 OF 1

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

SUMMARY OF INVESTMENTS—OTHER THAN INVESTMENTS IN RELATED PARTIES

(in thousands)

December 31, 2014

~~December 31, 2011~~

								Column A	Column B		Column C			Column D
Column A	Column B		Column C			Column D
Type of investment	Cost		Market value			Amount at which shown in the balance sheet			Cost		Market value			Amount at which shown in the balance sheet
Deposits with savings and loan associations and banks:
Deposits with banks:								Deposits with banks:
Consolidated	$	56,201	$	56,201		$	56,201	Consolidated	$	21,445	$	21,540		$	21,445

Debt securities:								Debt securities:
U.S. Treasury bonds								U.S. Treasury bonds
Consolidated	$	71,995	$	74,231		$	74,231	Consolidated	$	64,195	$	64,982		$	64,982

Municipal bonds								Municipal bonds
Consolidated	$	329,935	$	349,123		$	349,123	Consolidated	$	577,703	$	587,677		$	587,677

Foreign bonds								Foreign bonds
Consolidated	$	212,200	$	215,020		$	215,020	Consolidated	$	194,749	$	196,750		$	196,750

Governmental agency bonds								Governmental agency bonds
Consolidated	$	195,784	$	197,753		$	197,753	Consolidated	$	198,330	$	197,874		$	197,874

Governmental agency mortgage-backed securities								Governmental agency mortgage-backed securities
Consolidated	$	1,066,656	$	1,076,547		$	1,076,547	Consolidated	$	1,812,766	$	1,812,162		$	1,812,162

Non-agency mortgage-backed securities								Non-agency mortgage-backed securities
Consolidated	$	42,089	$	30,634		$	30,634	Consolidated	$	15,949	$	16,538		$	16,538

Corporate debt securities								Corporate debt securities
Consolidated	$	248,921	$	258,603		$	258,603	Consolidated	$	568,774	$	574,269		$	574,269

Total debt securities:								Total debt securities:
Consolidated	$	2,167,580	$	2,201,911		$	2,201,911	Consolidated	$	3,432,466	$	3,450,252		$	3,450,252

Equity securities:								Equity securities:
Consolidated	$	231,887	$	184,000		$	184,000	Consolidated	$	393,914	$	402,412		$	402,412

Notes receivable, net
Notes receivable, net:								Notes receivable, net:
Consolidated	$	15,581	$	14,534		$	15,581	Consolidated	$	6,130	$	3,930		$	6,130

Other long-term investments:								Other long-term investments:
Consolidated	$	185,224	$	185,224	(1)	$	185,224	Consolidated	$	153,653	$	153,653	(1)	$	153,653

Total investments:								Total investments:
Consolidated	$	2,656,473	$	2,642,917		$	2,642,917	Consolidated	$	4,007,608	$	4,031,787		$	4,033,892

(1)	As other long-term investments are not publicly traded, reasonable estimate of the fair values could not be made without incurring excessive costs.

SCHEDULE II

1 OF 45

FIRST AMERICAN FINANCIAL CORPORATION

(Parent Company)

CONDENSED BALANCE SHEETS

(in thousands, except par values)


	December 31, 2011			December 31, 2010			December 31,
	December 31, 2011			December 31, 2010			2014			2013
Assets
Cash and cash equivalents	$	147,339		$	86,417		$	328,949		$	221,666
Dividends receivable from subsidiaries		—			30,000
Due from subsidiaries, net		7,326			20,929
Income taxes receivable		20,431			22,266			5,547			37,632
Investments		85,507			123,967
Investment in subsidiaries		2,426,856			2,337,361			3,333,613			2,944,803
Property and equipment, net		2,237			10,890
Deferred income taxes		39,617			96,846			19,712			27,478
Other assets		70,953			76,644			105,344			88,752

	$	2,800,266		$	2,805,320
							$	3,793,165		$	3,320,331
Liabilities and Equity
Accounts payable and other accrued liabilities	$	27,804		$	23,401		$	55,021		$	75,656
Pension costs and other retirement plans		415,373			389,597			451,501			371,671
Due to CoreLogic, net		35,370			80,468
Income taxes payable								6,228			—
Due to subsidiaries, net								77			14,236
Deferred income taxes								95,128			93,362
Notes and contracts payable		200,000			201,084			549,166			249,163
Notes and contracts payable to subsidiaries		86,780			117,049			60,000			60,000
								1,217,121			864,088
		765,327			811,599

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.00001 par value, Authorized-500 shares; Outstanding-none		—			—
Common stock, $0.00001 par value:
Authorized—300,000 shares; Outstanding—105,410 shares and 104,457 shares as of December 31, 2011 and 2010, respectively		1			1
Preferred stock, $0.00001 par value; Authorized—500 shares; Outstanding—none								—			—
Common stock, $0.00001 par value; Authorized—300,000 shares;
Outstanding—107,541 shares and 105,900 shares								1			1
Additional paid-in capital		2,081,242			2,057,098			2,109,712			2,077,828
Retained earnings		124,816			72,074			662,310			520,764
Accumulated other comprehensive loss		(177,459	)		(149,156	)		(199,106	)		(145,544	)

Total stockholders’ equity		2,028,600			1,980,017			2,572,917			2,453,049
Noncontrolling interests		6,339			13,704			3,127			3,194

Total equity		2,034,939			1,993,721			2,576,044			2,456,243
							$	3,793,165		$	3,320,331
	$	2,800,266		$	2,805,320

See notes to condensed financial statements

~~SCHEDULE II~~

~~2 OF 4~~

SCHEDULE II

2 OF 5

FIRST AMERICAN FINANCIAL CORPORATION

(Parent Company)

CONDENSED STATEMENTS OF INCOME

(in thousands)

						Year Ended December 31,
	Year Ended December 31, 2011			Seven Months Ended December 31, 2010		2014		2013			2012
Revenues
Dividends from subsidiaries	$	60,600		$	136,650	$	342,488	$	372,996		$	285,141
Other (loss) income		(3,604	)		6,323

Other income							6,412		12,804			29,839
		56,996			142,973		348,900		385,800			314,980
Expenses
Other expenses		26,010			24,281		33,959		36,184			24,569

Income before income taxes and equity in undistributed earnings of subsidiaries		30,986			118,692
Income before income taxes and equity in undistributed earnings (losses) of subsidiaries							314,941		349,616			290,411
Income taxes		12,298			45,660		104,523		139,127			102,940
Equity in undistributed earnings of subsidiaries		59,891			19,000

Equity in undistributed earnings (losses) of subsidiaries							23,797		(23,425	)		114,257
Net income		78,579			92,032		234,215		187,064			301,728
Less: Net income attributable to noncontrolling interests		303			980		681		697			687

Net income attributable to the Company	$	78,276		$	91,052	$	233,534	$	186,367		$	301,041

See notes to condensed financial statements

~~SCHEDULE II~~

~~3 OF 4~~

SCHEDULE II

3 OF 5

FIRST AMERICAN FINANCIAL CORPORATION

(Parent Company)

CONDENSED STATEMENTS OF ~~CASH FLOWS~~COMPREHENSIVE INCOME

(in thousands)

   Year Ended
December 31,
2011 Seven Months Ended
December 31, 2010
Cash flows from operating activities:

Cash provided by operating activities
   $ 78,307    $ 67,444


Cash flows from investing activities:

Net change in investments
   17,852    12,893
Purchase of subsidiary shares from/other decreases in noncontrolling interests
   (4,156 ) —
Proceeds from sale of property and equipment
   1,056    —
Capital expenditures
   (29 ) (3,256 )


Cash provided by investing activities
   14,723    9,637


Cash flows from financing activities:

Repayment of debt
   (1,083 ) (766 )
Repayment of debt to subsidiaries
   (5,269 ) (3,636 )
Excess tax benefits from share-based compensation
   1,145    1,080
Net proceeds from shares issued in connection with restricted stock unit, option and benefit plans
   1,152    2,430
Distributions to noncontrolling interests
   (335 ) —
Purchase of Company shares
   (2,502 ) —
Cash dividends
   (25,216 ) (12,502 )


Cash used for financing activities
   (32,108 ) (13,394 )


Net increase in cash and cash equivalents
   60,922    63,687
Cash and cash equivalents—Beginning of period
   86,417    22,730


Cash and cash equivalents—End of period
   $ 147,339    $ 86,417

	Year Ended December 31,
	2014			2013			2012
Net income	$	234,215		$	187,064		$	301,728
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities		18,862			(32,992	)		31,445
Unrealized gain on securities for which credit losses have been recognized in earnings		776			2,327			3,902
Foreign currency translation adjustment		(16,694	)		(13,650	)		5,131
Pension benefit adjustment		(56,496	)		49,324			(13,571	)
Total other comprehensive income (loss), net of tax		(53,552	)		5,009			26,907
Comprehensive income		180,663			192,073			328,635
Less: Comprehensive income attributable to noncontrolling interests		691			694			691
Comprehensive income attributable to the Company	$	179,972		$	191,379		$	327,944

See notes to condensed financial statements

~~SCHEDULE II~~

~~4 OF 4~~

SCHEDULE II

4 OF 5

FIRST AMERICAN FINANCIAL CORPORATION

(Parent Company)

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2014			2013			2012
Cash flows from operating activities:
Cash provided by (used for) operating activities	$	54,298		$	71,326		$	(38,703	)
Cash flows from investing activities:
Net cash effect of acquisitions		(151,570	)		—			—
Proceeds from sales of equity securities		—			—			137,823
Contributions to subsidiaries		(11,396	)		(800	)		(10,999	)
Net change in other long-term investments		1,490			6,549			595
Cash (used for) provided by investing activities		(161,476	)		5,749			127,419
Cash flows from financing activities:
Net proceeds from issuance of debt		593,943			249,095			440,000
Repayment of debt		(300,000	)		(160,000	)		(480,000	)
Repayment of debt to subsidiaries		—			—			(2,902	)
Excess tax benefits from share-based compensation		6,856			6,202			2,372
Net proceeds in connection with share-based compensation plans		3,601			1,736			12,668
Purchase of Company shares		—			(64,606	)		—
Cash dividends		(89,939	)		(51,324	)		(44,705	)
Cash provided by (used for) financing activities		214,461			(18,897	)		(72,567	)
Net increase in cash and cash equivalents		107,283			58,178			16,149
Cash and cash equivalents—Beginning of period		221,666			163,488			147,339
Cash and cash equivalents—End of period	$	328,949		$	221,666		$	163,488

See notes to condensed financial statements

SCHEDULE II

5 OF 5

FIRST AMERICAN FINANCIAL CORPORATION

(Parent Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1. ~~Significant Accounting Policies:~~

Description of the Company:

First American Financial Corporation became a publicly traded company following its spin-off from its prior parent, The First American Corporation (“TFAC”) on June 1, 2010. On that date, TFAC distributed all of First American Financial Corporation’s outstanding shares to the record date shareholders of TFAC on a one-for-one basis. After the distribution, First American Financial Corporation owns TFAC’s financial services businesses and TFAC, which reincorporated and assumed the name CoreLogic, Inc. ~~continues~~, continued to own its information solutions businesses. As such, in 2010 First American Financial Corporation’s Parent Company opening condensed balance sheet is as of June 1, 2010 and the condensed statements of income and cash flows are for the seven months ended December 31, 2010.

First American Financial Corporation is a holding company that conducts all of its operations through its subsidiaries. The Parent Company Financial Statements should be read in connection with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

Supplemental information about non-cash financing activity

In 2013, $23.9 million in tax receivables due from subsidiaries were reduced with a corresponding reduction in notes payable to subsidiaries in noncash transactions.

NOTE 2. Dividends Received:

The ~~Company~~holding company received cash dividends from subsidiaries of ~~$75.6~~$79.1 million, $125.1 million and ~~$83.8~~$11.8 million for the years ended December 31, ~~2011~~2014, 2013 and ~~2010,~~2012, respectively.

SCHEDULE III

1 OF 2

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

SUPPLEMENTARY INSURANCE INFORMATION

(in thousands)

BALANCE SHEET CAPTIONS

	Column A	Column B		Column C		Column D
Segment		Deferred policy acquisition costs		Claims reserves		Deferred revenues
2014
Title Insurance and Services		$	2,179	$	969,008	$	14,265
Specialty Insurance			25,316		42,772		188,499
Total		$	27,495	$	1,011,780	$	202,764
2013
Title Insurance and Services		$	2,375	$	977,355	$	14,544
Specialty Insurance			24,437		41,010		177,640
Total		$	26,812	$	1,018,365	$	192,184

~~SUPPLEMENTARY INSURANCE INFORMATION~~

~~(in thousands)~~

~~BALANCE SHEET CAPTIONS~~

Column A
   Column B    Column C    Column D
Segment
   Deferred
policy
acquisition
costs    Claims
reserves    Deferred
revenues
2011

Title Insurance and Services
   $ —         $ 981,522       $ 10,261
Specialty Insurance
   21,800       33,154       145,365






Total
   $ 21,800       $ 1,014,676       $ 155,626






2010

Title Insurance and Services
   $ —         $ 1,070,680       $ 7,603
Specialty Insurance
   20,639       37,558       137,116






Total
   $ 20,639       $ 1,108,238       $ 144,719

SCHEDULE III

2 OF 2

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

SUPPLEMENTARY INSURANCE INFORMATION

(in thousands)

INCOME STATEMENT CAPTIONS

	Column A	Column F		Column G			Column H		Column I			Column J			Column K
Segment		Premiums and escrow fees		Net investment income (1)			Loss provision		Amortization of deferred policy acquisition costs			Other operating expenses			Premiums written
2014
Title Insurance and Services		$	3,603,080	$	83,635		$	253,122	$	2,746		$	761,584		$	—
Specialty Insurance			353,812		12,594			196,901		(878	)		45,599			364,782
Corporate			—		6,415			—		—			26,528			—
Eliminations			—		(1,536	)		—		—			(30	)		—
Total		$	3,956,892	$	101,108		$	450,023	$	1,868		$	833,681		$	364,782
2013
Title Insurance and Services		$	3,900,132	$	79,940		$	343,461	$	1,261		$	816,870		$	—
Specialty Insurance			329,194		8,767			186,895		(2,529	)		41,725			344,433
Corporate			—		13,008			—		—			27,264			—
Eliminations			—		(2,609	)		—		—			(54	)		—
Total		$	4,229,326	$	99,106		$	530,356	$	(1,268	)	$	885,805		$	344,433
2012
Title Insurance and Services		$	3,455,592	$	101,495		$	237,427	$	1,174		$	769,477		$	—
Specialty Insurance			296,053		17,513			160,290		(108	)		42,395			312,696
Corporate			—		29,892			—		—			24,462			—
Eliminations			—		(3,747	)		—		—			(15	)		—
Total		$	3,751,645	$	145,153		$	397,717	$	1,066		$	836,319		$	312,696

(1)	Net investment income includes net investment income, net realized investment gains and net other-than-temporary impairment losses.

~~SUPPLEMENTARY INSURANCE INFORMATION~~

~~(in thousands)~~

~~INCOME STATEMENT CAPTIONS~~

Column A
   Column F    Column G Column H    Column I Column J    Column K
Segment
   Premiums
and escrow
fees    Net
investment
income Loss
provision    Amortization
of deferred
policy
acquisition
costs Other
operating
expenses    Net
premiums
written
2011

Title Insurance and Services
   $ 2,852,455       $ 66,721    $ 270,697       $ —      $ 693,541       $ —
Specialty Insurance
   273,665       11,786    149,439       (1,161 ) 38,106       275,044
Corporate
   —         (1,660 ) —         —      22,102       —
Eliminations
   —         (3,876 ) —         —      1       —








Total
   $ 3,126,120       $ 72,971    $ 420,136       $ (1,161 ) $ 753,750       $ 275,044








2010

Title Insurance and Services
   $ 2,908,797       $ 76,299    $ 180,821       $ —      $ 734,901       $ —
Specialty Insurance
   272,863       13,703    140,053       1,887    42,385       271,809
Corporate
   —         8,252    —         —      26,302       —
Eliminations
   —         (1,806 ) —         —      15       —








Total
   $ 3,181,660       $ 96,448    $ 320,874       $ 1,887    $ 803,603       $ 271,809








2009

Title Insurance and Services
   $ 3,014,216       $ 86,024    $ 205,819       $ —      $ 849,320       $ —
Specialty Insurance
   270,475       7,901    140,895       2,353    41,975       265,601
Corporate
   —         1,103    —         —      18,171       —








Total
   $ 3,284,691       $ 95,028    $ 346,714       $ 2,353    $ 909,466       $ 265,601

SCHEDULE IV

1 OF 1

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

REINSURANCE

~~REINSURANCE~~

(in thousands, except percentages)

Segment
   Premiums
and escrow
fees before
reinsurance    Ceded to
other
companies    Assumed
from
other
companies    Premiums
and escrow
fees    Percentage of
amount
assumed to
premiums
and escrow
fees
Title Insurance and Services

2011
   $ 2,861,418       $ 13,744       $ 4,781       $ 2,852,455       0.2 %










2010
   $ 2,912,767       $ 12,457       $ 8,487       $ 2,908,797       0.3 %










2009
   $ 3,014,368       $ 4,430       $ 4,278       $ 3,014,216       0.1 %










Specialty Insurance

2011
   $ 283,885       $ 10,220       $ —         $ 273,665       0.0 %










2010
   $ 281,275       $ 8,412       $ —         $ 272,863       0.0 %










2009
   $ 278,307       $ 7,832       $ —         $ 270,475       0.0 %

Segment	Premiums and escrow fees before reinsurance		Ceded to other companies		Assumed from other companies		Premiums and escrow fees		Percentage of amount assumed to premiums and escrow fees
Title Insurance and Services
2014	$	3,627,921	$	28,727	$	3,886	$	3,603,080		0.1	%
2013	$	3,923,117	$	27,483	$	4,498	$	3,900,132		0.1	%
2012	$	3,472,675	$	19,884	$	2,801	$	3,455,592		0.1	%
Specialty Insurance
2014	$	363,044	$	9,232	$	—	$	353,812		0.0	%
2013	$	338,204	$	9,010	$	—	$	329,194		0.0	%
2012	$	305,073	$	9,020	$	—	$	296,053		0.0	%

SCHEDULE V

1 OF 3

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

Year Ended December 31, ~~2011~~2014

Column A
   Column B    Column C Column D Column E
Description
   Balance at
beginning
of period    Additions Deductions
from
reserve Balance
at end
of period
      Charged to
costs and
expenses Charged
to other
accounts
Reserve deducted from accounts receivable:

Consolidated
   $ 39,904       $ 1,723    $ 11,123 (A) $ 30,504




Reserve for known and incurred but not reported claims:

Consolidated
   $ 1,108,238       $ 420,136    $ (10,264 ) $ 503,434 (B) $ 1,014,676




Reserve deducted from loans receivable:

Consolidated
   $ 3,271       $ 900    $ 4,171




Reserve deducted from other assets:

Consolidated
   $ 5,905       $ 1,026    $ 2,748    $ 4,183




Reserve deducted from deferred income taxes:

Consolidated
   $ 19,126       $ (2,976 ) $ 5,276    $ 21,426

	Column A	Column B		Column C				Column D			Column E
				Additions
Description		Balance at beginning of period		Charged to costs and expenses		Charged to other accounts		Deductions from reserve			Balance at end of period
Reserve deducted from accounts receivable:
Consolidated		$	31,831	$	12,352	$	—	$	9,521	(A)	$	34,662
Reserve for known and incurred but not reported claims:
Consolidated		$	1,018,365	$	450,023	$	13,142	$	469,750	(B)	$	1,011,780
Reserve deducted from notes receivable:
Consolidated		$	2,584	$	128	$	—	$	271		$	2,441
Reserve deducted from deferred income taxes:
Consolidated		$	18,119	$	—	$	—	$	2,413		$	15,706

Note A—Amount represents accounts written off, net of recoveries.

Note B—Amount represents claim payments, net of recoveries.

SCHEDULE V

2 OF 3

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

Year Ended December 31, ~~2010~~2013

Column A
   Column B    Column C    Column D Column E
Description
   Balance at
beginning
of period    Additions    Deductions
from
reserve Balance
at end
of period
      Charged to
costs and
expenses Charged
to other
accounts
Reserve deducted from accounts receivable:

Consolidated
   $ 35,595       $ 11,046       $ 6,737 (A) $ 39,904






Reserve for known and incurred but not reported claims:

Consolidated
   $ 1,227,757       $ 320,874    $ 15,832       $ 456,225 (B) $ 1,108,238






Reserve deducted from loans receivable:

Consolidated
   $ 2,071       $ 1,200       $ 3,271






Reserve deducted from other assets:

Consolidated
   $ 6,679       $ 1,541       $ 2,315    $ 5,905






Reserve deducted from deferred income taxes:

Consolidated
   $ 27,045       $ (7,919 )    $ 19,126

	Column A	Column B		Column C						Column D			Column E
				Additions
Description		Balance at beginning of period		Charged to costs and expenses			Charged to other accounts			Deductions from reserve			Balance at end of period
Reserve deducted from accounts receivable:
Consolidated		$	30,917	$	7,478		$	—		$	6,564	(A)	$	31,831
Reserve for known and incurred but not reported claims:
Consolidated		$	976,462	$	530,356		$	(9,143	)	$	479,310	(B)	$	1,018,365
Reserve deducted from notes receivable:
Consolidated		$	2,902	$	(132	)	$	—		$	186		$	2,584
Reserve deducted from deferred income taxes:
Consolidated		$	14,172	$	3,578		$	369		$	—		$	18,119

Note A—Amount represents accounts written off, net of recoveries.

Note B—Amount represents claim payments, net of recoveries.

SCHEDULE V

3 OF 3

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

Year Ended December 31, ~~2009~~2012

Column A
   Column B    Column C    Column D Column E
Description
   Balance at
beginning
of period    Additions    Deductions
from
reserve Balance
at end
of period
      Charged to
costs and
expenses    Charged
to other
accounts
Reserve deducted from accounts receivable:

Consolidated
   $ 43,695       $ 20,377          $ 28,477 (A) $ 35,595






Reserve for known and incurred but not reported claims:

Consolidated
   $ 1,326,282       $ 346,714       $ 6,948       $ 452,187 (B) $ 1,227,757








Reserve deducted from loans receivable:

Consolidated
   $ 1,600       $ 471          $ 2,071






Reserve deducted from other assets:

Consolidated
   $ 15,817       $ 792          $ 9,930    $ 6,679






Reserve deducted from deferred income taxes:

Consolidated
   $ 19,922       $ 7,123          $ 27,045

	Column A	Column B		Column C				Column D			Column E
				Additions
Description		Balance at beginning of period		Charged to costs and expenses		Charged to other accounts		Deductions from reserve			Balance at end of period
Reserve deducted from accounts receivable:
Consolidated		$	30,504	$	4,927	$	—	$	4,514	(A)	$	30,917
Reserve for known and incurred but not reported claims:
Consolidated		$	1,014,676	$	397,717	$	10,055	$	445,986	(B)	$	976,462
Reserve deducted from notes receivable:
Consolidated		$	4,183	$	462	$	—	$	1,743		$	2,902
Reserve deducted from deferred income taxes:
Consolidated		$	21,426	$	—	$	15	$	7,269		$	14,172

Note A—Amount represents accounts written off, net of recoveries.

Note B—Amount represents claim payments, net of recoveries.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

The Company’s chief executive officer and chief financial officer have concluded that, as of December 31, ~~2011,~~2014, the end of the fiscal year covered by this Annual Report on Form 10-K, the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) thereunder.

Management’s Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2011.~~2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control—Integrated Framework (2013). Based on that assessment under the framework inInternal Control—Integrated Framework (2013), management determined that, as of December 31, ~~2011,~~2014, the Company’s internal control over financial reporting was effective.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements provided in Item 8, above, has issued a report on the Company’s internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the quarter ended December 31, ~~2011,~~2014, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.

Other Information

On February 20, 2015, the board of directors amended the Company’s bylaws to add language that (i) requires a director nominee to offer to resign if he or she receives a greater number of “withhold” votes than “for” votes in an uncontested election and (ii) designates Delaware courts as the exclusive forum for the adjudication of certain stockholder disputes.

The majority voting provision set forth in Section 3.2 of the amended and restated bylaws generally provides that: (a) in an uncontested election any nominee for director who receives a greater number of “withhold” votes than votes “for” his or her election will promptly tender his or her resignation as a director; (b) the board of directors will decide within ninety

(90) days following certification of the stockholder vote whether to accept or reject the resignation offer; and (c) if the board of directors accepts the resignation offer, it will thereafter determine whether to fill the resulting vacancy or reduce the size of the board of directors.

The forum selection provision set forth in Article IX of the amended and restated bylaws generally provides that, unless the Company otherwise consents in writing, the sole and exclusive forum for any stockholder to bring: (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of breach of a fiduciary duty to the Company or the Company’s stockholders, (c) any action asserting a claim arising pursuant to any provisions of the Delaware General Corporation Law or the Company’s certificate of incorporation or bylaws, or (d) any action asserting a claim governed by the internal affairs doctrine shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). The Company’s board of directors believes that the forum selection amendment is in the best interests of the stockholders because, among other reasons, Delaware courts have developed expertise in resolving disputes regarding corporate litigation and it is the same state in which the Company is incorporated. Focusing litigation in one jurisdiction avoids unnecessary risk, uncertainty and expense from potentially concurrent multi-jurisdictional litigation. The board of directors expects the exclusive forum to result in a more predictable outcome in those legal actions covered by the forum selection amendment and avoid unnecessary expenditure of Company resources. The forum selection amendment does not preclude any type of legal actions against the Company or its directors or officers; rather, it directs certain legal actions to a single jurisdiction that is focused on and experienced with Delaware law, with the goal of securing a more efficient and effective resolution of those legal actions. The forum selection amendment also preserves the ability of the Company to consent to the selection of an alternative forum.

The description of the amendments to the Company's bylaws provided herein is qualified in its entirety by reference to the Company's amended and restated bylaws, which are attached hereto as Exhibit 3.2 and are incorporated by reference into this Item 9B.

~~Effective as of February 24, 2012, Parker S. Kennedy has resigned as the Company’s executive chairman and has been appointed chairman of the board.~~

PART III

The information required by Items 10 through 14 of this report is expected to be set forth in the sections entitled “Information Regarding the Nominees for Election,” “Information Regarding the Other Incumbent Directors,” “Election of Class III Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Board and Committee Meetings,” “Executive Compensation,” “Compensation Discussion and Analysis,” ~~“Director~~“2014 Director Compensation,” “Codes of Ethics,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report,” “Securities Authorized for Issuance under Equity Compensation Plans,” “Who are the largest principal stockholders outside of management?,” “Security Ownership of Management,” “Principal Accounting Fees and Services” “Policy on Audit Committee Pre-approval of Audit and Permissible Nonaudit Services of Independent Auditor,” “Transactions with Management and Others” and “Independence of Directors” in the Company’s definitive proxy statement, and is hereby incorporated in this report and made a part hereof by reference. If the definitive proxy statement is not filed within 120 days after the close of the fiscal year, the Company will file an amendment to this Annual Report on Form 10-K to include the information required by Items 10 through 14.

~~PART IV~~

PART IV

Item 15. ~~Exhibits~~

Exhibits and Financial Statement Schedules

	(a	)
~~(a)~~	1. & 2.		Financial Statements and Financial Statement Schedules

					The Financial Statements and Financial Statement Schedules filed as part of this report are listed in the accompanying index at page 5948 in Item 8 of Part II of this report.

		(a) 3.		Exhibits. See Exhibit Index. (Each management contract or compensatory plan or arrangement in which any director or named executive officer of First American Financial Corporation, as defined by Item 402(a)(3) of Regulation S-K (17 C.F.R. §229.402(a)(3)), participates that is included among the exhibits listed on the Exhibit Index is identified on the Exhibit Index by an asterisk (*).)

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


FIRST AMERICAN FINANCIAL CORPORATION (Registrant)
~~(Registrant)~~

By		/S/s/ DENNIS J. GILMORE

		Dennis J. Gilmore
		Chief Executive Officer
		(Principal Executive Officer)

		Date: February ~~27, 2012~~
	23, 2015
By		/S/s/ MAX ~~O. VALDES~~ ARK E. SEATON
			Mark E. Seaton
		~~Max O. Valdes~~	Chief Financial Officer
		(Principal Financial Officer)

		Date: February ~~27, 2012~~23, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title		Date

/S/s/ DENNIS J. GILMORE Dennis J. Gilmore	Chief Executive Officer and Director (Principal Executive Officer)		February ~~27, 2012~~
		23, 2015
~~/s/ M~~AX ~~O. VALDES~~ ~~Max O. Valdes~~
/S/ Mark E. Seaton Mark E. Seaton	Chief Financial Officer (Principal Financial Officer)		February 23, 2015

/S/ Matthew F. Wajner Matthew F. Wajner	Chief Accounting Officer ~~and~~ (Principal Accounting Officer)		February ~~27, 2012~~
		23, 2015

/S/s/ PARKER S. KENNEDY Parker S. Kennedy	Chairman of the Board of Directors		February ~~27, 2012~~
		23, 2015

/S/s/ ANTHONY K. ANDERSON Anthony K. Anderson	Director		February 23, 2015

/S/ GEORGE L. ARGYROS George L. Argyros	Director		February ~~27, 2012~~
		23, 2015
~~/s/ WILLIAM~~ ~~G. DAVIS~~ ~~William G. Davis~~	~~Director~~		~~February 27, 2012~~

/~~Signature~~S
/    J~~Title~~AMES
~~Date~~
~~/s/    JAMES~~ L. DOTI
James L. Doti
Director
February ~~27, 2012~~
23, 2015
/S/~~s/    LEWIS~~ ~~W. DOUGLAS, J~~R.    MICHAEL D. MCKEE
~~Lewis W. Douglas, Jr.~~
Michael D. McKee
Director
February ~~27, 2012~~
23, 2015
~~/s/    MICHAEL~~ ~~D. M~~CKEE
~~Michael D. Mckee~~
~~Director~~
~~February 27, 2012~~
/S/s/    THOMAS V. MCKERNAN
Thomas V. McKernan
Director
February ~~27, 2012~~
23, 2015
~~/s/    FRANK~~ O’~~BRYAN~~
~~Frank O’Bryan~~
/S/    Mark C. Oman
Mark C. Oman
Director
February ~~27, 2012~~23, 2015


Signature	Title		Date
/S/s/ HERBERT B. TASKER Herbert B. Tasker	Director		February ~~27, 2012~~
		23, 2015

/S/s/ VIRGINIA M. UEBERROTH Virginia M. Ueberroth	Director		February ~~27, 2012~~23, 2015


Exhibit No.	Description	Location

3.1	Amended and Restated Certificate of Incorporation of First American Financial Corporation dated May 28, 2010.	Incorporated by reference herein to Exhibit 3.1 to the Current Report on Form 8-K dated June 1, 2010.

3.2	Amended and Restated Bylaws of First American Financial ~~Corporation.~~Corporation, effective as of February 20, 2015.	Attached.

4.1	Indenture, dated as of January 24, 2013, between First American Financial Corporation and U.S. Bank National Association, as trustee.	Incorporated by reference herein to Exhibit ~~3.2~~4.1 to the Form S-3ASR filed January 24, 2013.

4.2	First Supplemental Indenture, dated as of January 29, 2013, between First American Financial Corporation and U.S. Bank National Association.	Incorporated by reference herein to Exhibit 4.2 to the Current Report on Form 8-K dated ~~June 1, 2010.~~January 29, 2013.

~~10.1~~ 4.3	Second Supplemental Indenture, dated as of November 10, 2014, between First American Financial Corporation and U.S. Bank National Association.	Incorporated by reference herein to Exhibit 4.2 to the Current Report on Form 8-K dated November 10, 2014.

4.4	Form of 4.30% Senior Notes due 2023.	Incorporated by reference herein to Exhibit A of Exhibit 4.2 to the Current Report on Form 8-K dated January 29, 2013.

4.5	Form of 4.60% Senior Notes due 2024.	Incorporated by reference herein to Exhibit A of Exhibit 4.2 to the Current Report on Form 8-K dated November 10, 2014.

10.1	Separation and Distribution Agreement by and between The First American Corporation (n/k/a CoreLogic, Inc.) and First American Financial Corporation dated as of June 1, 2010.	Incorporated by reference herein to Exhibit 10.1 to the Current Report on Form 8-K dated June 1, 2010.

10.2	Amended and Restated Credit Agreement dated as of ~~April 12, 2010,~~May 14, 2014, among First American Financial Corporation, ~~the Guarantors party thereto,~~ the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.	Incorporated by reference herein to Exhibit ~~10(s)~~10.1 to ~~Amendment No. 3 to~~the Quarterly Report on Form ~~10 filed April~~10-Q for the quarter ended June 30, ~~2010.~~2014.

10.3	Tax Sharing Agreement by and between The First American Corporation (n/k/a CoreLogic, Inc.) and First American Financial Corporation dated as of June 1, 2010.	Incorporated by reference herein to Exhibit 10.2 to the Current Report on Form 8-K dated June 1, 2010.

10.4	~~Promissory Note of The First American Corporation (n/k/a CoreLogic, Inc.) to First American Financial Corporation dated as of June 1, 2010.~~	~~Incorporated by reference herein to Exhibit 10.4 to the Annual Report on Form 10-K for the year ended December 31, 2010.~~

~~10.5~~	Third Amended and Restated Secured Promissory Note of First American Financial Corporation to First American Title Insurance Company in the amount of ~~$45,000,000,~~$60,000,000.00, dated as of ~~December 31, 2011.~~September 30, 2013.	~~Attached.~~

~~10.6~~	~~Promissory Note of First American Financial Corporation to First American Home Buyers Protection Corporation in the amount of $8,970,705, dated as of December 14, 2001.~~	Incorporated by reference herein to Exhibit ~~10(u)~~10.1 to ~~Amendment No. 1 to~~the Quarterly Report on Form ~~10 filed February 12, 2010.~~

~~10.7~~	~~Promissory Note of First American Financial Corporation to First American Home Buyers Protection Corporation in~~10-Q for the ~~amount of $10,000,000, dated as of March 29, 2002.~~	~~Incorporated by reference herein to Exhibit 10(v) to Amendment No. 1 to Form 10 filed February 12, 2010.~~

~~10.8~~	~~Promissory Note of First American Financial Corporation to First American Home Buyers Protection Corporation in the amount of $10,000,000, dated as of January 31, 2003.~~	~~Incorporated by reference herein to Exhibit 10(w) to Amendment No. 1 to Form 10 filed February 12, 2010.~~

~~10.9~~	~~Promissory Note of First American Financial Corporation to First American Home Buyers Protection Corporation in the amount of $10,000,000, dated as of January 9, 2004.~~	~~Incorporated by reference herein to Exhibit 10(x) to Amendment No. 1 to Form 10 filed February 12, 2010.~~

~~10.10~~	~~Promissory Note of First American Financial Corporation to First American Home Buyers Protection Corporation in the amount of $30,000,000, dated as of March 12, 2004.~~	~~Incorporated by reference herein to Exhibit 10(y) to Amendment No. 1 to Form 10 filed February 12, 2010.~~

quarter ended September 30, 2013.

~~Exhibit No.~~
~~Description~~
~~Location~~
*10.5
~~10.11~~ ~~Promissory Note of First American Financial Corporation to First American Home Buyers Protection Corporation in the amount of $10,000,000, dated as of March 7, 2005.~~ ~~Incorporated by reference herein to Exhibit 10(z) to Amendment No. 1 to Form 10 filed February 12, 2010.~~
*10.12
First American Financial Corporation Executive Supplemental Benefit Plan, amended and restated effective as of January 1, 2011.
Incorporated by reference herein to Exhibit 10.12 to the Annual Report on Form 10-K for the year ended December 31, 2010.
*~~10.13~~10.5.1
Amendment No. 1, dated January 21, 2015, to First American Financial Corporation Executive Supplemental Benefit Plan, amended and restated effective as of January 1, 2011.
Attached.
*10.6
First American Financial Corporation Deferred Compensation Plan, amended and restated effective as of January 1, 2012.
~~Attached.~~
*10.14 ~~First American Financial Corporation 2010 Incentive Compensation Plan, approved May 28, 2010.~~
Incorporated by reference herein to Exhibit ~~10.6 to the Current Report on Form 8-K dated June 1, 2010.~~
*10.15 ~~Form of Notice of Restricted Stock Unit Grant (Non-Employee Director) and Restricted Stock Unit Award Agreement (Non-Employee Director), approved February 10, 2009.~~
~~Incorporated by reference herein from Exhibit 10(yy) of The First American Corporation (n/k/a CoreLogic, Inc.) Annual Report on Form 10-K for the year ended December 31, 2008.~~
*10.16 Form of Notice of Restricted Stock Unit Grant (Non-Employee Director) and Restricted Stock Unit Award Agreement (Non-Employee Director) for Non-Employee Director Restricted Stock Unit Award approved January 18, 2011. ~~Incorporated by reference herein to Exhibit 10.15~~10.13 to the Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011.


*10.17 Exhibit No.	Description	Location
*10.7	First American Financial Corporation 2010 Incentive Compensation Plan, effective May 28, 2010.	Incorporated by reference herein to Appendix A to the Definitive Proxy Statement on Schedule 14A filed April 9, 2012.

*10.7.1	Form of Notice of Restricted Stock Unit Grant (Non-Employee Director) and Restricted Stock Unit Award Agreement (Non-Employee Director) for Non-Employee Director Restricted Stock Unit Award approved January 17, 2012.	Incorporated by reference herein to Exhibit 10.17 to the Annual Report on Form 10-K for the year ended December 31, 2011.

*10.7.2	Form of Notice of Restricted Stock Unit Grant (Non-Employee Director) and Restricted Stock Unit Award Agreement (Non-Employee Director) for Non-Employee Director Restricted Stock Unit Award approved January 15, 2013.	Incorporated by reference herein to Exhibit 10.7.4 to the Annual Report on Form 10-K for the year ended December 31, 2012.

*10.7.3	Form of Notice of Restricted Stock Unit Grant (Non-Employee Director) and Restricted Stock Unit Award Agreement (Non-Employee Director) for Non-Employee Director Restricted Stock Unit Award approved January 14, 2014.	Incorporated by reference herein to Exhibit 10.7.4 to the Annual Report on Form 10-K for the year ended December 31, 2013.

*10.7.4	Form of Notice of Restricted Stock Unit Grant (Non-Employee Director) and Restricted Stock Unit Award Agreement (Non-Employee Director) for Non-Employee Director Restricted Stock Unit Award approved January 21, 2015.	Attached.

*~~10.18~~10.7.5	Form of Notice of Restricted Stock Unit Grant (Employee) and Restricted Stock Unit Award Agreement (Employee), approved January 25, 2010.	Incorporated by reference herein from Exhibit 10(zz) to The First American Corporation (n/k/a CoreLogic, Inc.) Annual Report on Form 10-K for the year ended December 31, 2009.

*~~10.19~~10.7.6	Form of Notice of Restricted Stock Unit Grant and Restricted Stock Unit Award Agreement approved June 10, 2010.	Incorporated by reference herein to Exhibit 10(i) to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

*~~10.20~~10.7.7	Form of Notice of Restricted Stock Unit Grant (Employee) and Restricted Stock Unit Award Agreement (Employee), approved February 11, 2011.	Incorporated by reference herein to Exhibit 10.21 to the Annual Report on Form 10-K for the year ended December 31, 2010.

*~~10.21.1~~10.7.8	Form of Notice of Restricted Stock Unit Grant (Employee) and Restricted Stock Unit Award Agreement (Employee), approved January 17, 2012.	~~Attached.~~ Incorporated by reference herein to Exhibit 10.21.1 to the Annual Report on Form 10-K for the year ended December 31, 2011.

*~~10.21.2~~10.7.9	Form of Notice of Restricted Stock Unit Grant ~~(Valdes)~~(Employee) and Restricted Stock Unit Award Agreement ~~(Valdes)~~(Employee), approved ~~February 13,~~January 15, 2013.	Incorporated by reference herein to Exhibit 10.7.10 to the Annual Report on Form 10-K for the year ended December 31, 2012.	~~Attached.~~

~~Exhibit No.~~
~~Description~~
~~Location~~
*10.7.10
Form of Notice of Restricted Stock Unit Grant (Employee) and Restricted Stock Unit Award Agreement (Employee), approved January 14, 2014.
Incorporated by reference herein to Exhibit 10.7.12 to the Annual Report on Form 10-K for the year ended December 31, 2013.
*10.22
*10.7.11
Form of Notice of Restricted Stock Unit Grant (Employee) and Restricted Stock Unit Award Agreement (Employee), approved January 21, 2015.
Attached.
*10.7.12
Form of Notice of Performance Unit Grant and Performance Unit Award Agreement, approved January ~~25, 2010.~~15, 2013.
Incorporated by reference herein ~~from~~to Exhibit ~~10(mmm)~~10.7.15 to ~~The First American Corporation (n/k/a CoreLogic, Inc.)~~the Annual Report on Form 10-K for the year ended December 31, ~~2009.~~2012.


*10.23 Exhibit No.	~~Form of Notice of Performance Unit Grant and Performance Unit Award Agreement, approved March 7, 2011.~~ Description	~~Incorporated by reference herein to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2011.~~ Location
*10.7.13
*10.24	Form of Notice of Performance Unit Grant and Performance Unit Award Agreement, approved January ~~17, 2012.~~14, 2014.	~~Attached.~~

*10.25	~~Arrangement regarding salaries, bonuses and long term incentive restricted stock units for named executive officers, approved August 25, 2010 and August 31, 2010, respectively.~~	Incorporated by reference herein to Exhibit 10.7.14 to the ~~description contained in the Current~~Annual Report on Form ~~8-K, dated August~~10-K for the year ended December 31, ~~2010.~~2013.

*~~10.26~~10.7.14	~~Arrangement regarding salaries, bonuses~~ Form of Notice of Performance Unit Grant and ~~long term incentive restricted stock units for named executive officers,~~Performance Unit Award Agreement, approved ~~March 29, 2011.~~January 21, 2015.	~~Incorporated by reference herein to the description contained in the Current Report on Form 8-K filed April 4, 2011.~~ Attached.

*~~10.27~~10.8	Employment Agreement, dated ~~August 30, 2011,~~May 22, 2014, between First American Financial Corporation and Dennis J. Gilmore.	Incorporated by reference herein to Exhibit ~~10.1~~10.2 to the Quarterly Report on Form 10-Q for the quarter ended ~~September 30,2011.~~June 30, 2014.

*~~10.28~~10.9	Employment Agreement, dated ~~August 30, 2011,~~May 22, 2014, between First American Financial Corporation and Kenneth D. DeGiorgio.	Incorporated by reference herein to Exhibit 10. 23 to the Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2011.~~2014.

*~~10.29~~10.10	Employment Agreement, dated ~~August 30, 2011,~~May 15, 2014, between First American Financial Corporation and ~~Max O. Valdes.~~Christopher M. Leavell.	Incorporated by reference herein to Exhibit ~~10.3~~10.4 to the Quarterly Report on Form 10-Q for the quarter ended ~~September 30,2011.~~June 30, 2014.

*~~10.30~~10.11	~~Letter~~ Employment Agreement, ~~among~~dated May 15, 2014, between First American Financial Corporation ~~The First American Corporation (n/k/a CoreLogic, Inc.)~~ and ~~Parker S. Kennedy dated as of May 31, 2010.~~Mark E. Seaton.	Incorporated by reference herein to Exhibit ~~10.7 to the Current Report on Form 8-K dated June 1, 2010.~~

*10.31	~~Letter agreement dated October 29, 2010 among First American Financial Corporation, CoreLogic, Inc. and Parker S. Kennedy.~~	~~Incorporated by reference herein to Exhibit 10(e)~~10.5 to the Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2010.~~2014.

*~~10.32~~10.12	~~Change in Control Agreement effective as of December 31, 2010, by and between First American Financial Corporation and Parker S. Kennedy.~~	~~Incorporated by reference herein to Exhibit 10(d) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.~~

*10.33	First American Financial Corporation Form of Amended and Restated Change in Control Agreement effective as of December 31, 2010.	Incorporated by reference herein to Exhibit 10(c) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.

(21)	Subsidiaries of the registrant.	Attached.

(23)	Consent of Independent Registered Public Accounting Firm.	Attached.

~~Exhibit No.~~
~~Description~~
~~Location~~
(31)(a)
~~(31)(a)~~
Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Act of 1934.
Attached.
(31)(b)
Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
Attached.
(32)(a)
Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
Attached.
(32)(b)
Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
Attached.
101.INS
XBRL Instance Document.
Attached.
101.SCH
XBRL Taxonomy Extension Schema Document.
Attached.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
Attached.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
Attached.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
Attached.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
Attached.

~~146~~120

Common
~~Common~~		New York Stock Exchange
(Title of each class)		(Name of each exchange on which registered)


Large accelerated filer x	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨


Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 to October 31, 2011		—		—		—	$	150,000,000
November 1 to November 30, 2011		—		—		—	$	150,000,000
December 1 to December 31, 2011		203,900	$	12.27		203,900	$	147,497,665

Total		203,900	$	12.27		203,900	$	147,497,665

PART I
Item 1.	Business	6
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	21
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 8.	Financial Statements and Supplementary Data	48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	112
Item 9A.	Controls and Procedures	112
Item 9B.	Other Information	112
PART III
PART IV
Item 15.	Exhibits and Financial Statement Schedules	115


	First American Financial Corporation (FAF) (1)		Custom Peer Group (1)(2)		Russell 2000 Financial Services Index (1)		First American Financial Corporation (FAF) (1)		Custom Peer Group (1)(2)		Russell 2000 Financial Services Index (1)
June 2, 2010	$	100	$	100	$	100	$	100	$	100	$	100
December 31, 2010	$	104	$	105	$	112	$	104	$	106	$	113
December 31, 2011	$	90	$	110	$	109	$	90	$	116	$	109
December 31, 2012							$	174	$	134	$	132
December 31, 2013							$	208	$	191	$	173
December 31, 2014							$	258	$	210	$	189